* China factory activity shrinks at fastest pace in 3 years
* Dollar skids, S&P 500 falls 2 pct
* Crude oil futures drop
(Updates with U.S. market opening levels, changes dateline;
previous LONDON)
By Caroline Valetkevitch
NEW YORK, Sept 1 (Reuters) - World stocks and commodity
prices dropped on Tuesday as poor Chinese data intensified fears
about China's economic health and its effect on other economies.
The S&P 500 fell more than 2 percent as surveys showed
China's manufacturing sector shrinking at its fastest pace in
three years and its services sector also cooling.
Oil prices initially fell more than 4 percent after rallying
more than 8 percent on Monday.
"With the weak data coming out, we're going to see the
negative sentiment from the last few weeks continuing," said Joe
Rundle, a senior sales trader at ETX Capital.
The Dow Jones industrial average .DJI fell 359.91 points,
or 2.18 percent, at 16,168.12. The Standard & Poor's 500 Index
.SPX was down 41.64 points, or 2.11 percent, at 1,930.54. The
Nasdaq Composite Index .IXIC was down 79.94 points, or 1.67
percent, at 4,696.57.
Stocks added to losses after data showed U.S. factory
activity hit a more than two-year low in August.
MSCI's all-country stock index .MIWD00000PUS lost 2.35
percent, while the pan-European FTSEurofirst 300 stocks index
.FTEU3 was down 3.2 percent.
Asian stocks, particularly in Japan .N225 and Australia
.AXJO , fell overnight, and the gloomy mood extended to Europe.
The FTSEurofirst 300 .FTEU3 dropped 3.2 percent, following its
worst month in four years.
In the oil market, Brent crude dropped $3.24 to
$50.91 a barrel. U.S. crude was down $3.10 at $46.10 a
barrel. On Monday it settled up $3.98, or 8.8 percent.
While shares and commodities remained the focus, the mood
was similarly wary in the currency and bond markets.
The benchmark 10-year U.S. Treasury note US10YT=RR was up
6/32, the yield at 2.179 percent.
The safe-haven Japanese yen JPY= and the low-yielding euro
EUR= both rose against the dollar, while a U.S. dollar index
.DXY was down 0.1 percent.
Russia's ruble was among the hardest-hit emerging market
currencies as the price of oil fell.
FRAGILE CHINA
The head of the International Monetary Fund, Christine
Lagarde, summed up the situation in a speech in Indonesia, where
she said global economic growth was now likely to be weaker than
had been expected just a few months ago.
She cited both a slower recovery in major advanced economies
and a further slowdown in emerging nations and highlighted the
need to "be vigilant for spillovers" from China's stutters.
Comments by Federal Reserve Vice Chairman Stanley Fischer
over the weekend appeared to keep alive chances of a U.S.
interest rate increase in September.
Spot gold rose to a session high of $1,147.16 an
ounce and was up 0.9 percent at $1,144.42 an ounce.
London Metal Exchange copper fell almost 1 percent
to $5,087.50 as markets reopened after a long holiday weekend.
Nickel slid 2 percent and aluminum skidded as well.