Technology companies led a broad slide for stocks on Wall Street Monday, handing the market a downbeat start to the month after notching strong gains in November.
Industrial, communication services and financial stocks also accounted for a big share of the sell-off. Energy stocks notched the biggest gain, aided by a 1.4% increase in the price of U.S. crude oil. Bond yields rose.
Trade tensions flared with China's diplomatic retaliation for U.S. support of protesters in Hong Kong, putting investors in a selling mood. The selling accelerated after the U.S. government issued weak manufacturing and construction spending reports.
Wall Street has been hoping that the world's two biggest economies can make progress toward at least stalling new tariffs scheduled for Dec. 15 on $160 billion worth of Chinese products, including smartphones and laptops. The latest friction between Washington and Beijing could hamper that progress.
"The market is getting increasingly anxious that it's possible, perhaps not likely, that the tariffs are imposed on Dec. 15, thus escalating the tariff trade war," said Quincy Krosby, chief market strategist at Prudential Financial.
The S&P 500 index fell 27.11 points, or 0.9%, to 3,113.87. The Dow Jones Industrial Average dropped 268.37 points, or 1%, to 27,783.04.
The Nasdaq lost 97.48 points, or 1.1%, to 8,567.99. The Russell 2000 index of smaller company stocks gave up 16.92 points, or 1%, to 1,607.58.
Bond prices fell. The yield on the 10-year Treasury note rose to 1.82% from 1.77% late Friday.
The stumbling start to December is a departure from the market's strong performance last month. The S&P 500 closed out November with its best monthly gain since June. Last week also marked the benchmark index's seventh weekly gain in eight weeks. In that time span, the S&P 500, Dow Jones Industrial Average and Nasdaq each set multiple record closing highs.
Investor optimism that the U.S. and China were nearing a trade deal helped spur the market's milestone-setting run this fall, lifting it from a summer slide brought on by recession fears and uncertainty over trade.
The negotiations to end the longstanding trade war could face a tougher path this month following a flareup over Hong Kong, however.
China said Monday it will suspend U.S. military ship and aircraft visits to the semi-autonomous territory and sanction several American pro-democracy groups in retaliation against Washington for enacting into law legislation supporting anti-government protests.
The law, signed last Wednesday by President Donald Trump, mandates sanctions on Chinese and Hong Kong officials who carry out human rights abuses and requires an annual review of the favorable trade status that Washington grants Hong Kong.
In other trade developments, President Trump on Monday accused Argentina and Brazil of hurting American farmers through currency manipulation and said he'll slap tariffs on their steel and aluminum imports to retaliate.
Both South American nations were among a group of U.S. allies that Trump had exempted from steel and aluminum tariffs in March 2018. United States Steel climbed 4.2% and AK Steel rose 4.7% after Trump's remarks.
New data on manufacturing and construction spending also helped drag stock indexes lower Monday.
U.S. manufacturing shrank more than expected in November, according to figures released by the Institute for Supply Management.
Solid job growth, along with consumer spending, have been among the key factors pushing economic growth. But manufacturing has been a weak spot in the broader economy. Still, investors were not expecting the latest data to show further weakness, Krosby said.
"That triggered the market's concerns about the economic underpinning of the economy," she said.
Homebuilders fell broadly after the government report showing that spending on construction projects declined unexpectedly in October. Hovnanian Enterprises slumped 6.9%.
Other key reports are due out this week which should help shed light on the health of the economy.
A report on the services sector, which makes up the bulk of the economy, is expected on Wednesday, as is payroll processor ADP's latest survey of hiring by private companies. The Labor Department will release its closely watched employment data on Friday.
Technology stocks were the biggest drag on the market Monday. Many of the companies in that sector rely on China for sales and supply chains and can become very volatile with new developments in trade negotiations. Adobe fell 2.2% and Microsoft slid 1.2%.
Industrial and communication services companies also moved lower. Honeywell shed 2.4% and Netflix dropped 1.5%.
Energy stocks held up the best as oil prices rose. Halliburton gained 1.4%.
Companies that make or sell consumer goods such as cigarettes, food and beverages also eked out a gain. Hormel Foods added 2% and Campbell Soup rose 1.4%.
Benchmark crude oil rose 79 cents to settle at $55.96 a barrel. Brent crude oil, the international standard, gained 43 cents to close at $60.92 a barrel. Wholesale gasoline fell 2 cents to $1.57 per gallon. Heating oil climbed 1 cent to $1.89 per gallon. Natural gas rose 5 cents to $2.33 per 1,000 cubic feet.
Gold fell $3.30 to $1,462.30 per ounce, silver fell 13 cents to $16.84 per ounce and copper fell 1 cent to $2.63 per pound.
The dollar fell to 108.98 Japanese yen from 109.48 yen on Friday. The euro strengthened to $1.1078 from $1.1017.
European markets closed broadly lower Monday.