The S&P; 500 has suffered its biggest one-day tumble since September after reports of a memo by former FBI chief James Comey suggested that President Donald Trump tried to interfere with a federal investigation, setting off alarm bells on Wall Street.
Trump had asked Comey to end a probe into former National Security Adviser Michael Flynn's ties with Russia, the reports said.
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Memo: Trump asked Comey to shut down Flynn probe
A report that President Donald Trump asked former FBI Director James Comey to shut down an investigation into ousted national security adviser Michael Flynn is being disputed by The White House.
It was only the latest worry in a tumultuous week at the White House when Trump unexpectedly fired Comey and then disclosed classified information to Russia's foreign minister about a planned Islamic State operation.
The latest developments intensified worries about whether or when Trump will be able to implement proposals for business-friendly policies such as tax cuts and deregulation, which have underpinned a record-setting rally on Wall Street.
The Dow Jones Industrial Average fell 370.12 points, or 1.76 per cent, to 20,609.63, the S&P; 500 lost 43.35 points, or 1.81 per cent, to 2,357.32 and the Nasdaq Composite dropped 158.63 points, or 2.57 per cent, to 6,011.24.
"As the afternoon wears on and the market doesn't find support, sellers just pile on," said Ken Polcari, Director of the NYSE floor division at O'Neil Securities in New York who said he expected the market to fall further before the close.
Bank stocks, which outperformed in the post-election rally, were the worst hit. The S&P; 500 bank sub-sector was down 4.5 per cent while the broader financial sector sank 3.4 per cent, led by a 6.2 per cent decline in Bank of America stocks and a 4 per cent drop for JPMorgan.
"This is the unwinding of the Trump trade as people are losing any optimism he might get his agenda through," said Robert Phipps, director at Per Stirling Capital Management in Austin, Texas. "What's interesting is that the sell off is so small."
![Investors are 'losing optimism' in Trump, say analysts.](http://web.archive.org./web/20170520160119im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/6/i/c/n/image.related.articleLeadwide.620x349.gw7ci5.png/1495058457835.jpg)
Both the Dow and the S&P; 500 fell below their 50-day moving average for first time since late April. The S&P; began the session by opening 0.74 per cent lower, the largest gap down since March 30, 2009, when the index suffered a 0.84 per cent drop at the start of trading.
At 2:49 p.m. EDT, the Dow Jones Industrial Average was down 347.56 points, or 1.66 per cent, to 20,632.19, the S&P; 500 had lost 40.55 points, or 1.69 per cent, to 2,360.12 and the Nasdaq Composite had dropped 146.00 points, or 2.37 per cent, to 6,023.87.
![The Australian sharemarket on Thursday followed a decline in Wall Street overnight.](http://web.archive.org./web/20170520160119im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/7/c/c/e/image.related.articleLeadwide.620x349.gw7ci5.png/1495094545706.jpg)
The VIX, Wall Street's "fear gauge", shot up to 14.57, its highest level since April 21.
Eight of the 11 major S&P; 500 sectors were lower.
The only gainers were utilities, real estate and consumer staples sectors - so-called defensive stocks which often do well in times of uncertainty due to their predictable if slow growth and high dividend yields.
Declining issues outnumbered advancing ones on the NYSE by a 3.60-to-1 ratio; on Nasdaq, a 5.48-to-1 ratio favoured decliners.
The S&P; 500 posted 9 new 52-week highs and 19 new lows; the Nasdaq Composite recorded 25 new highs and 84 new lows.
Reuters