US STOCKS-Wall Street closes down, pares losses after Trump delays Mexico tariffs

Updates at the close

By Abigail Summerville and Shashwat Chauhan

Feb 3 (Reuters) - The major stock indexes closed lower on Monday, but partly recovered from initial steeper losses as U.S. President Donald Trump delayed tariffs on Mexico after his orders to levy tariffs on three countries sparked a global scramble to safe-haven assets earlier in the day.

Trump said he has paused planned tariffs on Mexico for one month after the nation agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal drugs, particularly fentanyl.

Over the weekend, Trump had announced hefty new tariffs of 25% on imports from Mexico and Canada, and 10% on China - which he said may cause short-term pain for Americans.

"Trump has been really serious that tariffs are going to be a primary tool to achieve a number of different things," said Carol Schleif, chief investment officer at BMO Family Office.

"They're not going away and the ride is likely to be bumpy in the short run. And it's clear the European Union is in his sights too."

Analysts at Citi noted that "if tariffs persist, markets are likely to move further (down) and inflationary effects will emerge."

According to preliminary data, the S&P 500 .SPX lost 45.45 points, or 0.75%, to end at 5,995.01 points, while the Nasdaq Composite .IXIC lost 235.21 points, or 1.20%, to 19,392.23. The Dow Jones Industrial Average .DJI fell 124.47 points, or 0.27%, to 44,420.19.

The 11 major S&P sectors were mixed, with defensive ones such as healthcare .SPXHC and consumer staples .SPLRCS leading gains while information technology .SPLRCT and consumer discretionary .SPLRCD lost the most ground.

Legacy automakers like Ford F.N and General Motors GM.N - which have been roiled by the impending tariffs - recouped some of their losses.

The Cboe Volatility Index .VIX, known as Wall Street's fear gauge, touched its highest level in a week before falling.

The stock market had already been pulling back last week after Chinese startup DeepSeek unveiled a breakthrough in cheap artificial intelligence models that sank tech stocks.

Nvidia NVDA.O and a gauge of semiconductor stocks .SOX fell.

"With the tariffs and the DeepSeek freak-out that you had last week, you’ve got the shift going from the picks and shovels of the technology buildout towards software. There’s some of that parsing going on with a focus on software," Schleif said.

The economically sensitive Russell 2000 smallcaps index .RUT recovered from its three-week low.

Treasury yields edged down as investors fled to safer assets such as bonds and gold. Spot gold XAU= scaled an all-time high.

Several large companies report quarterly earnings this week, with Tyson Foods TSN.N shares gaining after the meatpacker raised its annual sales forecast, while IDEXX Laboratories IDXX.O jumped after the animal diagnostics maker beat fourth-quarter profit and revenue estimates.

On the data front, U.S. manufacturing grew for the first time in more than two years in January, data from the Institute for Supply Management showed.