US STOCKS-Wall St knocked lower by tariff jitters, Musk's political plan hurts Tesla

By Sinéad Carew and Pranav Kashyap

July 7 (Reuters) - Wall Street's major indexes fell more than 1% on Monday, after U.S. President Donald Trump announced 25% tariffs against Japan and South Korea, while Tesla shares sank after CEO Elon Musk announced political ambitions.

Indexes added to losses when Trump announced the tariff rates against Japanese and South Korean imports, which are expected to take effect on August 1 .

Last week, both the Nasdaq .IXIC and the S&P 500 .SPX ended three sessions with record closes. The latest record finishes came on Thursday after a robust jobs report .

"We've had an incredible run, multiple days of record highs and we're back on tariff watch again," said Michael O’Rourke, chief market strategist at JonesTrading, pointing to the Japan and South Korea tariff announcements.

"It's not totally a surprise and they still have until August 1 to figure out a deal," said O'Rourke. "This is more profit taking than people really being truly worried ... If the market were truly scared, we'd be much lower."

At 2:32 p.m. the Dow Jones Industrial Average .DJI fell 648.35 points, or 1.43%, to 44,186.66, the S&P 500 .SPX lost 75.72 points, or 1.21%, to 6,203.63 and the Nasdaq Composite .IXIC lost 266.62 points, or 1.29%, to 20,334.48.

One of the S&P 500's biggest drags was from electric vehicle maker Tesla TSLA.O, which dived more than 7% to a near one-month low after CEO Musk announced formation of a new political party named the "American Party", further escalating his feud with Trump.

Investors also awaited other U.S. trade announcements that have a July 9 deadline. On Sunday, Trump said the U.S. was on the cusp of several deals and would notify other countries of higher tariff rates by July 9, with new duties to take effect on August 1.

On Monday, Trump threatened an extra 10% tariff on countries aligning themselves with the "Anti-American policies" of the BRICS group of Brazil, Russia, India, China and South Africa.

In early April, stock indexes saw dramatic volatility after Trump had unveiled a base tariff rate of 10% on most countries and additional duties ranging up to 50% on April 2 and then announced a 90-day pause days later.

The Nasdaq .IXIC confirmed a bear market or a 20% drop from its recent record in early April and the S&P 500 had narrowly averted a bear. Both indexes had returned to record levels by late June.

All of the S&P 500's 11 major industry sectors were lower, with consumer discretionary .SPLRCD and energy .SPNY falling the most. The smallest losers were defensive consumer staples .SPLRCS and utilities .SPLRCU.

Shares of WNS Holdings WNS.N jumped more than 14% after the French IT services firm Capgemini CAPP.PA agreed to buy the outsourcing firm for $3.3 billion in cash.

Trump's inflation-causing tariff policies have further complicated the Fed's path to lower rates. As a result, minutes of its June meeting, scheduled for release on Wednesday, should offer more clues on the monetary policy outlook.

Traders are betting on a 95% probability that rates will remain unchanged in July while the odds for a September cut are close to 63%, according to CME Group's FedWatch tool.

Another area of investor focus is U.S. tax-cut and spending plans, signed into law by Trump late last week. These are expected to swell the national deficit by over $3 trillion in the next decade.

Declining issues outnumbered advancers by a 4.78-to-1 ratio on the NYSE where there were 172 new highs and 27 new lows.

On the Nasdaq, 1,065 stocks rose and 3,413 fell as declining issues outnumbered advancers by a 3.2-to-1 ratio.

The S&P 500 posted 24 new 52-week highs and 3 new lows while the Nasdaq Composite recorded 96 new highs and 50 new lows.