(For a live blog on the U.S. stock market, click or type LIVE/ in a news window)
* Industrials fall after weak ISM manufacturing data
* E*Trade Financial, Charles Schwab lead declines on S&P
* McDonald's drops on JPM comments
* Indexes: Dow -1.14%, S&P 500 -1.11%, Nasdaq -0.99% (Updates to afternoon)
By Noel Randewich
Oct 1 (Reuters) - Wall Street tumbled on Tuesday after data showed U.S. factory activity shrank in September to its weakest in more than a decade, ratcheting up fears that a U.S.-China trade war could hobble the world's largest economy.
Investors moved to the safety of U.S. Treasuries after the manufacturing activity index showed a reading of 47.8, according to the ISM report, falling further from August's sharp contraction and below economists' expectations of 50.1. A reading below 50 indicates contraction.
With lingering trade tensions weighing on exports, the U.S. data mirrored similar patterns in the euro zone, Japan, the United Kingdom and China.
The S&P industrials index dropped 2.3%, the most among the 11 major S&P sectors. The materials index fell 2.1%. All 11 sectors were lower.
A jobs report on Friday is expected to shed further light on U.S. economic growth.
"This is a bad number, fitting in with the world’s manufacturing recession," Jim Bianco, head of Bianco Research in Chicago, said of the ISM report. "I think the market is right to be concerned, but we will have to see whether other manufacturing numbers in the U.S. bear that out, not the least of which being the manufacturing payroll numbers on Friday."
Despite a prolonged U.S.-China trade war that has hammered global growth, confidence in the domestic economy has helped the benchmark S&P 500 climb about 17% this year.
Thomas Simons, a Jefferies economist, said the manufacturing contraction does not underpin a wider softening in the U.S. economy, as it was the result of factors including Boeing Co's production issues relating to its best-selling jets.
"Manufacturing itself is in a recession, but it does not mean that the overall economy is in a recession."
At 2:25 p.m. ET, the Dow Jones Industrial Average was down 1.14% at 26,610.48 points, while the S&P 500 lost 1.11% to 2,943.77.
The Nasdaq Composite dropped 0.99% to 7,919.89.
Shares of online brokerage E*Trade Financial tumbled 17.3%, the most on the S&P 500, after rival Charles Schwab Corp said it would remove commissions for online trading of stocks, ETFs and options listed on U.S. or Canadian exchanges.
Charles Schwab's shares slumped 11.0%.
McDonald's Corp dropped 2.5% after JP Morgan said the fast food chain's third-quarter same-store sales would be softer than analysts' estimates.
Shares of chipmaker Xilinx Inc declined 3.2% after KeyBanc lowered its rating to "sector weight".
Ulta Beauty Inc advanced 5.3% after an independent director bought back shares.
As the final quarter of 2019 kicks off, investors will be focusing on a range of factors, beginning with the high-stakes Sino-U.S. trade talks in early October, corporate earnings and the Fed's next policy meeting.
Declining issues outnumbered advancing ones on the NYSE by a 2.83-to-1 ratio; on Nasdaq, a 3.36-to-1 ratio favored decliners.
The S&P 500 posted 12 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 27 new highs and 102 new lows. (Additional reporting by Medha Singh and Arjun Panchadar in Bengaluru Editing by Nick Zieminski)