April 3 (Reuters) - U.S. stocks were heading for sharp closing declines on Thursday, with the bloodbath engulfing megacap technology names and small companies alike, as President Donald Trump's sweeping tariffs on major U.S. trade partners ignited fears of an all-out trade war and a global economic recession.
Investors fled from risky assets, seeking the safety of government bonds, after Trump slapped a 10% tariff on most U.S. imports and much higher levies on dozens of other countries.
The tariffs, poised to disrupt the global trade order, highlight a stark shift from just a few months ago when the promise of business-friendly policies under the Trump administration propelled U.S. stocks to record highs.
Investors sold positions to reflect the new economic reality, with concerns about how other countries would react to Trump's Rose Garden proclamations.
China vowed retaliation, as did the European Union, which faces a 20% duty. South Korea, Mexico, India and several other trading partners said they would hold off for now as they seek concessions before the targeted tariffs take effect on April 9.
The coming days are expected to be volatile, as events unfold and the full effect of Trump's economic actions start to feed through into the wider economy. The CBOE Volatility index (.VIX), known as Wall Street's fear gauge, touched a three-week high at 27.52 points.
At 03:07 p.m. EDT, the S&P 500 (.SPX), sank 232.04 points, or 4.09%, to 5,439.73 points, while the Nasdaq Composite (.IXIC), slumped 903.44 points, or 5.13%, to 16,697.60. The Dow Jones Industrial Average (.DJI), fell 1,400.87 points, or 3.32%, to 40,824.45.
High-flying technology stocks suffered big declines after pushing Wall Street to record highs in recent years.
Apple (AAPL.O), sank 9.5%, reeling from an aggregate 54% tariff on China, the base for much of the iPhone maker's manufacturing. Nvidia (NVDA.O), slumped 6% and Amazon.com (AMZN.O), dropped 8.4%.
U.S. stocks have lost ground since Trump took office in January, with the S&P 500 and the Nasdaq (.IXIC), dropping 10% from record highs last month, marking a correction, as investors priced in the economic damage from the tariffs.
Traders are ramping up expectations for the Federal Reserve to cut interest rates four times this year, starting with a quarter-point cut in June.
"The Fed does have considerable firepower to help the market," said George Bory, chief investment strategist for the fixed income team at Allspring Global Investments.
"The market is now pricing in more rate cuts, and perhaps sooner," adding an easing in June now seemed guaranteed, with the chance of a cut in May as well.
That heightens the significance of Friday's payrolls data and Fed Chair Jerome Powell's speech the same day, which could offer crucial insights into the U.S. economy's health and the future path of interest rates.
Retailers were hit hard, with Nike (NKE.N), dropping 13.6% and Ralph Lauren (RL.N), falling 16.1% on a raft of new tariffs on major production hubs including Vietnam, Indonesia and China.
Big banks such as Citigroup (C.N), and Bank of America (BAC.N), which are sensitive to economic risks, fell more than 10.6% each. JPMorgan Chase & Co (JPM.N), lost 6.4%.
The U.S. small-cap Russell 2000 index (.RUT), tumbled 5.9%, underscoring concerns about the health of the domestic economy.
Exxon Mobil (XOM.N), and Chevron (CVX.N), fell 4.6% and 5.6%, respectively, as crude prices , slumped 6.8% on the tariffs and OPEC+ speeding up output hikes.
Consumer staples (.SPLRCS), was one of the few bright spots, rising 0.9%. The sector is traditionally considered a defe
sive play, but it was also buoyed on Thursday by Lamb Weston (LW.N), which gained 10.9% after reporting earnings.
Reporting by Sruthi Shankar and Pranav Kashyap in Bengaluru and David French in New York; Additional reporting by Nupur Anand; Editing by Saumyadeb Chakrabarty, Anil D'Silva, Shounak Dasgupta and Richard Chang
