US stocks tumbled to one month lows on Friday after a sharp escalation in US-China trade tensions and a tepid July jobs report renewed fears of slowing economic growth and also raised bets of further interest rate cuts this year. President Donald Trump's threat on Thursday to slap a 10% tariff on $300 billion of Chinese imports from next month rattled global markets and drove investors to safe-havens like US Treasuries and the Japanese yen.
China on Friday said it would not be blackmailed and warned of retaliation.
"The tariff threat was a splash of cold water, the market had became accustomed to the current state of U.S-China trade negotiations, but a hike in tariffs wakes you up to the fact that the trade war is still with us," said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.
Technology companies, which get a sizeable portion of their revenue from China, were the hardest hit, down 1.75%, weighed by iPhone maker Apple Inc and chipmakers.
The Philadelphia Semiconductor index slipped 1.28%, while shares of Apple fell 2%.
"If the trade war rhetoric is going to continue to ramp up, then the Fed is going to have to continue to fight that with monetary policy," Antonelli said.
Meanwhile, the Labour Department report showed US job growth slowed in July and manufacturers slashed hours for workers.
The S&P 500 and Nasdaq indexes were on pace to post their fifth straight session of losses in a week that saw the Federal Reserve play down hopes of further monetary easing after cutting interest rates for the first time in a decade.
Traders of short-term interest-rate futures are now pricing in an about 80% chance of a rate cut next month, and an about 70% chance of a further reduction in December, according CME Group's FedWatch tool.
At 12:33 pm ET, the Dow Jones Industrial Average was down 185.97 points, or 0.70%, at 26,397.45, the S&P 500 was down 23.62 points, or 0.80%, at 2,929.94. The Nasdaq Composite was down 111.34 points, or 1.37%, at 7,999.78.
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