Fresh North Korea tensions hit Wall Street

(Reuters) - U.S. stocks sank on Tuesday, with the S&P 500 stumbling to its biggest single-day loss in about three weeks, as investors weighed fresh tensions with North Korea.

North Korea on Sunday conducted its sixth nuclear test, which it said was of an advanced hydrogen bomb for a long-range missile, marking a dramatic escalation of the regime’s stand-off with the United States and its allies.

With U.S. markets closed on Monday for the Labor Day holiday, Tuesday marked the first regular trading since the geopolitical developments.

“North Korea seems to be what gets the biggest reaction, at least over the last month or two,” said Aaron Jett, vice president for global equity research at Bel Air Investment Advisors in Los Angeles.

“It’s basically just a risk-off day ... There is no data, no earnings, nothing really fundamental to move the market today, so it sells off when there’s a scary headline again,” Jett said.

The Dow Jones Industrial Average .DJI fell 234.25 points, or 1.07 percent, to 21,753.31, the S&P 500 .SPX lost 18.7 points, or 0.76 percent, to 2,457.85 and the Nasdaq Composite .IXIC dropped 59.76 points, or 0.93 percent, to 6,375.57.

Wall Street may face a bumpy road in September, typically the worst month for stocks, if there is a showdown in Washington over the U.S. budget and the federal debt ceiling.

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Investors’ nerves on Tuesday also may have been heightened by news of a powerful storm heading to the southern United States closely on the heels of devastation in Texas from Hurricane Harvey.

Shares in home insurers with exposure to Florida tumbled as investors braced for losses as Hurricane Irma appeared set to hit the state.

The CBOE Volatility index .VIX, the most widely followed barometer of expected near-term stock market volatility, rose 2.10 points to 12.23.

The benchmark S&P fell as much as 1.2 percent during the session, but stemmed its losses by the close. Declines of at least 1 percent have been rare in 2017 as the stock market has steadily climbed to all-time highs.

The S&P on Friday had ended within five points of its record closing high.

“We rallied pretty hard over the past two weeks and didn’t really break out to the upside so I think that set us up to give some back today,” said William Delwiche, investment strategist at Baird in Milwaukee.

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Some investors saw any sell-off as a reason to buy in a bull run that is now more than eight years old.Financials .SPSY were the worst-performing sector, dropping 2.2 percent for their biggest one-day fall since mid-May as U.S. Treasury yields dropped sharply.

Federal Reserve Governor Lael Brainard said the U.S. central bank should delay raising U.S. interest rates until it is confident inflation that is now “well short” of target will rebound.

Goldman Sachs' shares GS.N fell 3.6 percent, dragging down the Dow, while the S&P was pulled lower by a more than 2-percent fall in shares of JPMorgan JPM.N and Bank of America BAC.N.

Aerospace stocks were rattled by United Technologies' UTX.N $23 billion deal to buy avionics maker Rockwell Collins COL.N. United Technologies shares slumped 5.7 percent and were the Dow's biggest decliners, while shares of fellow Dow component, plane maker Boeing BA.N, fell 1.4 percent. Rockwell Collins shares rose 0.3 percent.

Delta Air Lines DAL.N shares fell 3.5 percent after the airline cut its forecast for passenger unit revenue.

Insmed INSM.O shares more than doubled after the company said its drug for a rare lung disorder met the main goal in a late-stage study.

Declining issues outnumbered advancing ones on the NYSE by a 2.34-to-1 ratio; on Nasdaq, a 2.14-to-1 ratio favored decliners.

About 6.7 billion shares changed hands on U.S. exchanges, above the 5.8 billion daily average over the last 20 sessions.

Additional reporting by Sruthi Shankar in Bengaluru; Editing by Nick Zieminski and Dan Grebler