(Adds European closings, latest prices)
* Wall St losses near 2 percent
* European shares off sharply
* Dollar index near two-week high on rates outlook
By Michael Connor
NEW YORK, Sept 22 (Reuters) - Falling commodities prices and
worries about China's economy pulled stocks sharply lower on
Tuesday, while bond yields declined and the dollar rose to a
two-week high on bets U.S. officials will soon hike interest
rates.
Wall Street losses neared 2 percent on selling driven by
falls in oil and copper, which also helped knock down shares in
Europe and left the pan-European FTSEurofirst 300 stocks index
.FTEU3 off 3.3 percent.
Wall Street's Dow Jones industrial average .DJI was off
265.94 points, or 1.61 percent, to 16,244.25 in early afternoon
trading, the S&P 500 .SPX lost 34.75 points, or 1.77 percent,
to 1,932.22 and the Nasdaq Composite .IXIC dropped 103.50
points, or 2.14 percent, to 4,725.45.
Copper prices CMCU3 were down 3.9 percent at three-week
lows, while oil was off 2 percent. The Chinese government's
efforts to stimulate growth by easing fiscal and monetary policy
have failed to calm nerves in global markets.
"The market is fragile as it is," said Art Hogan, chief
market strategist at Wunderlich Securities in New York. "The
volatility will continue until we get some clarity from the Fed
and China."
The U.S. Federal Reserve last week kept rates near zero,
citing turbulence in a tightly-linked global economy, including
slowing growth in China. Atlanta Fed President Dennis Lockhart
said on Monday a rate hike later this year was still possible.
The selloffs in stocks and commodities boosted U.S.
Treasuries prices and other lower-risk government debt, such as
German 10-year Bunds DE10YT=TV . Benchmark 10-year Treasuries
notes US10YT=RR were up 26/32 in price, yielding 2.1195
percent.
Weakness in stock markets also helped lift the yen against
the dollar, though the policy divergence between the Fed on the
one hand and the European Central Bank and Bank of Japan on the
other helped push the dollar to its highest since Sept. 10
against a basket of currencies .DXY .
Though the Fed held policy steady last week, ECB officials
have been stressing that monetary policy in the euro zone will
remain loose for some time.
The euro EUR= was down 0.5 percent at $1.1140, having hit
a high of $1.1459 on Friday. The dollar eased 0.5 percent to
119.96 yen JPY= but was still above Friday lows.
Oil prices fell as concern over global growth weakened the
outlook for demand and traders took profits from Monday's rise.
Brent crude, the global benchmark, was down 75 cents a
barrel at $48.17 LCOc1 . ID:nL4N11S13J
Gold XAU= eased with stocks and commodities and also
suffered from the speculation the Fed may still raise rates in
2015. It last traded at $1,1225.50, a decline of 0.75 percent.
"We're still in a situation where investors are going to
wait and see when a hike will happen," Capital Economics analyst
Simona Gambarini said. "There's going to be a bit of volatility
around precious metals until the Fed eventually does hike
rates."