US STOCKS-Wall St falls 2% as Middle East conflict stokes inflation worries

By Johann M Cherian and Ragini Mathur

March 3 (Reuters) - Wall Street's main indexes fell more than 2% on Tuesday, with the S&P 500 hitting its lowest in over two months, as investors braced for the impact of a widening Middle East conflict on oil prices, inflation and global trade.

Tehran's threat to attack any vessel attempting to transit the Strait of Hormuz, combined with production halts by several Middle Eastern oil and gas producers, has driven up global shipping rates and prices of crude and natural gas.

The strait, a critical chokepoint, carries roughly one-fifth of the world's total oil consumption.

"Investors worry about additional inflation coming down the road. The main concern is that (oil prices) goes to over $100 a barrel and stays there," said Robert Pavlik, senior portfolio manager at Dakota Wealth.

"Hopefully this will be a quick and decisive war. But there are just a lot of questions, so I wouldn't go out on a limb."

Industries such as airlines and travel that are exposed to crude prices were knocked back for a second day. Delta DAL.N and Royal Caribbean RCL.N fell about 3% and 4%, respectively.

At 09:50 a.m. ET, the Dow Jones Industrial Average .DJI fell 1,083.69 points, or 2.22%, to 47,821.09, the S&P 500 .SPX lost 141.91 points, or 2.06%, to 6,739.71 and the Nasdaq Composite .IXIC lost 483.41 points, or 2.12%, to 22,265.45.

The sell-off was broad and all major sectors on the S&P 500 were trading in the red.

Heavyweight technology stocks .SPLRCT fell 1.9% with Nvidia NVDA.O slipping 1.7%, after gaining in the previous session.

The small-caps index .RUT slid 3.4%, while Wall Street's fear gauge, the CBOE volatility index .VIX, spiked to a fresh three-month high of 27.30 points.

Meanwhile, alternative asset managers took a hit after a surge in redemption requests hit Blackstone's BX.N flagship credit fund, BCRED.

Blackstone slid 7.7%, while Ares Management ARES.N and Blue Owl Capital OWL.N lost 4% each.

INFLATION TO WEIGH ON FED THINKING

Investors feared that the higher oil prices could fuel inflation and complicate central bank policy decisions already strained by tariff-driven price increases.

The U.S. 10-year Treasury yield US10YT=RR touched its highest level in more than a week and investors pushed back expectations for a 25-basis-point interest rate cut by the Federal Reserve to September from July, according to LSEG-compiled data.

Prices of traditional safe-havens such as precious metals slid due to a stronger dollar =USD. Miners .SPLRCM tanked the most among S&P 500 sectors with a 4.2% drop.

Beyond geopolitics, investors are grappling with uncertainty over how disruptive AI models might be for traditional businesses, while also assessing volatility in the private credit market.

MongoDB's MDB.O shares plunged 26.3% after the database software company forecast quarterly profit below Street estimates.

Target TGT.N shares gained 4.4% after new CEO Michael Fiddelke pledged a return to sales growth and issued an upbeat profit outlook, signaling a turnaround at the struggling retailer.

Declining issues outnumbered advancers by a 14.21-to-1 ratio on the NYSE and by a 8.21-to-1 ratio on the Nasdaq.

The S&P 500 posted 10 new 52-week highs and three new lows while the Nasdaq Composite recorded 14 new highs and 110 new lows.