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By Sinéad Carew and Chuck Mikolajczak
NEW YORK, June 24 (Reuters) - Wall Street's three major indexes suffered their biggest daily percentage drop in almost two weeks on Wednesday as a surge in U.S. coronavirus cases intensified fears of another round of government lockdowns and worsening economic damage.
The United States has recorded the second-largest rise in infections since the health crisis began, with a flare-up of cases in states where restrictions meant to contain the disease were lifted early.
Highlighting the seriousness of the resurgence in cases for many investors, the governors of New York, New Jersey and Connecticut announced that visitors from states with high coronavirus infection rates must self-quarantine for 14 days on arrival.
"Today was finally the day markets came to terms with the fact that increasing COVID-19 cases could mean a slower recovery in the economy," said Art Hogan, chief market strategist at National Securities in New York.
Shares of U.S. airlines, resorts and cruise operators slumped as these sectors have been hardest hit by lockdowns. Royal Caribbean Cruises Ltd, Norwegian Cruise Line Holdings Ltd and Wynn Resorts all tumbled along with the NYSE Arca Airline index plunged.
The pandemic also appeared to be causing wider and deeper damage to economic activity than first thought. The IMF said it now expects global output to shrink by 4.9%, compared with a 3.0% contraction predicted in April.
Advanced economies have been particularly hard hit, with U.S. output now expected to shrink 8.0%, more than 2 percentage points worse than the April forecast.
Wall Street's fear gauge, the CBOE volatility index, rose to a one-week high of 37.12 during the session.
Unofficially, the Dow Jones Industrial Average fell 704.68 points, or 2.69%, to 25,451.42, the S&P 500 lost 80.78 points, or 2.58%, to 3,050.51 and the Nasdaq Composite dropped 224.27 points, or 2.21%, to 9,907.10.
Before Wednesday's sell off, a slate of better-than-feared economic reports, easing lockdowns and massive stimulus measures had powered the Nasdaq to an all-time high and put the benchmark S&P 500 on track for its best quarterly performance since 1998.
"The market seemed pretty confident we were going to be in much better shape in 4-6 months from now. With the resurgence of cases they're starting to discount that," said Shawn Cruz, senior manager for trader strategy at TD Ameritrade in Jersey City, New Jersey.
Cruz also cited increasing tensions between the United States and Europe. On Tuesday the New York Times reported that Europe might not allow visitors from the United States when it reopens.
Then the United States moved to maintain pressure on the European Union in a 16-year dispute over aircraft subsidies by flagging possible changes in tariffs on EU goods, as the date for a decision on reciprocal EU duties slipped to the autumn.
In addition to coronavirus concerns, Carnival Corp faced a credit rating downgrade by Standard & Poor's for its bonds to junk status as the agency forecast continued weak demand for the cruise industry.
Dell Technologies Inc was a bright spot, as its shares jumped after a report said the company was considering spinning off its roughly $50 billion stake in cloud computing software maker VMware Inc. (Additional reporting by Chuck Mikolajczak; Editing by Cynthia Osterman)