* S&P 500 drops under 100-day moving average
* Crude oil jumps on Middle East supply concerns
* Tiffany’s falls after results, Goodyear up on labor contract
* Indexes down: Dow 1 pct, S&P 1.4 pct, Nasdaq 2 pct
By Ryan Vlastelica
NEW YORK, Aug 27 (Reuters) - U.S. stocks fell sharply on Tuesday as geopolitical uncertainty rose over a possible military strike by the West against Syrian President Bashar al-Assad’s forces after a chemical weapons attack.
The S&P 500 dropped under its 100-day moving average for the first time since June, a sign of weakening near-term momentum. The day’s decline extended recent weakness that came on uncertainty over when the U.S. Federal Reserve will start to slow its stimulative monetary policies.
Odds grew that a strike would occur against al-Assad’s forces for a chemical weapons attack against civilians as a number of nations and groups-- including Britain, France, Canada and the Arab League-- joined Washington in urging a firm response to Assad. Adding to the tension, Russia has supported Assad in the fighting.
Investors who use asset allocation in their portfolios will need to adjust to the increased political risk, which could lead to further market weakness, traders said.
“Geopolitical risk has been muted for asset allocators, but it needs to be ratcheted up now,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York. “Doing that in a market that was already acting sloppy is cause for further weakness.”
Investor nervousness was reflected in a jump of more than 20 percent in the CBOE volatility index in the last two days. The uncertainty also lifted gold to a 15-week peak.
Western sources who attended a meeting in Istanbul between envoys of an alliance opposed to Assad and the Syrian National Coalition said “action to deter further use of chemical weapons by the Assad regime could come as early as in the next few days.”
Defense Secretary Chuck Hagel said U.S. military forces in the region are “ready to go” should President Barack Obama order action against Syria.
All ten S&P 500 sectors were lower, with financials and materials the weakest of the day. Both groups, which are closely tied to the pace of economic growth, fell more than 2 percent. About 80 percent of companies traded on both the New York Stock Exchange and Nasdaq fell.
Losses in the energy sector were partly offset as crude oil surged 2.8 percent.
“The potential disruption of Middle East oil supply will not only provide support for commodities, but this is a sector that has underperformed, where valuations are compelling,” said Grohowski, who helps oversee $175 billion in client assets.
The Dow Jones industrial average was down 146.94 points, or 0.98 percent, at 14,799.52. The Standard & Poor’s 500 Index was down 23.49 points, or 1.42 percent, at 1,633.29. The Nasdaq Composite Index was down 72.46 points, or 1.98 percent, at 3,585.11.
The S&P 500 is down 2.9 percent in August, putting it on track for its worst monthly performance since May 2012.
A potential economic headwind for the market is the need to raise the federal government’s borrowing authority soon. U.S. Treasury Secretary Jack Lew said it was essential for Congress to raise the borrowing limit by mid-October or the country will face default.
Goldman Sachs fell 2.7 percent to $153.60 a day after a source said the company lost tens of millions of dollars after a computer glitch led to a flood of erroneous options trades last week.
Shares of Tiffany & Co’s dipped 0.9 percent to $80.92 after reporting second-quarter sales that missed expectations, though the jeweler raised its full-year profit view on strong results in China.
Goodyear Tire and Rubber Co surged 2.2 percent to $19.05 after the company detailed a new master labor contract.
U.S. regulators have asked Nasdaq OMX Group and NYSE Euronext to come up with a timeline of Thursday’s three-hour trading disruption, but the rival exchange operators have been unable to agree on the details, according to several sources familiar with the situation
Shares of Nasdaq OMX fell 1.9 percent to $30.07 while NYSE Euronext was off 0.6 percent at $42.06.