By Ryan Vlastelica
NEW YORK (Reuters) - U.S. stocks dropped more than 1 percent on Monday, extending a slide as investors worried about the impact on equities from the Federal Reserve's plan to exit its economic stimulus and a cash squeeze in China that could hurt its economy.
All 10 S&P 500 sectors were solidly lower, with 94 percent of stocks traded on the New York Stock Exchange and four-fifths of Nasdaq-listed shares falling. Energy and material shares were the weakest.
The S&P 500 has slumped 5 percent over the past four sessions and dropped below its 100-day moving average. Last week, it dropped decisively below its 50-day average, a sign that near-term momentum may be toward the downside.
"The Fed sparked some to start exiting equities, but now that's snowballing as everyone exits. It appears most people are moving to cash," said Tom Donino, co-head of trading at First New York Securities in New York, who added that the market may continue to fall until it hits 1,550.
The Fed last week said that if the economy improves, it would start to reduce a stimulus program widely credited with fueling the market's 10 percent rally year to date. The comments were the catalyst for a major market decline, with the S&P posting its worst week in two month. Yields on 10-year Treasuries jumped to more than 2.6 percent, its highest level since August 2011.
The NYSE Arca gold bugs index lost 4.6 percent and the PHLX gold/silver sector index fell 4.4 percent.
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Markets in Shanghai and Hong Kong suffered heavy losses after the People's Bank of China said banks needed to do a better job of managing their cash and lending as the central bank attempts to move the world's second largest economy away from credit-driven investment.
The news sparked concerns that the region's economy could be slowed further. Shares in Shanghai plummeted 5.3 percent while Chinese shares tumbled to their biggest daily loss in almost four years.
The Dow Jones industrial average was down 223.78 points, or 1.51 percent, at 14,575.62. The Standard & Poor's 500 Index was down 29.25 points, or 1.84 percent, at 1,563.18. The Nasdaq Composite Index was down 56.38 points, or 1.68 percent, at 3,300.87.
The S&P 500 has fallen 3.9 percent in June, putting the benchmark S&P index on track to end a seven-month rise as well as its worst monthly performance since May 2012. The index is down 6 percent from its all-time closing high on May 21.
"Generally when you see declines this steep and severe, equities find a bottom and recover somewhat dramatically," said Donino. "I suspect that could happen soon."
While all 10 S&P sectors were lower, energy and materials, both of which are tied to the pace of growth, were the weakest. Cliffs Natural Resources sank 9.6 percent to $15.54 as the biggest decliner on the S&P, followed by Consol Energy , off 8.2 percent to $27.36 and Peabody Energy , down 7.4 percent to $14.83.
U.S. hospital operator Tenet Healthcare Corp will buy smaller rival Vanguard Health Systems Inc for $4.3 billion or $21 per share including debt to expand into new locations. Vanguard shares jumped 68 percent to $20.73 and Tenet gained 6 percent to $44.37 as the S&P's top advancer.
Barrick Gold Corp will lay off up to a third of its corporate staff at its Toronto headquarters and other offices, sources said, as the world's top bullion producer downsizes more as the price of gold slumps. U.S.-listed shares fell 5.2 percent to $16.02.
Keynote Systems Inc said it had agreed to be acquired by an affiliate of private equity firm Thoma Bravo LLC for about $395 million, or $20 per share. Keynote surged 46 percent to $19.78.
STEC Inc jumped 87 percent to $6.72 after Western Digital Corp said it would buy the company for about $340 million in cash. Western Digital shares shed 2.4 percent to $58.72.
(Reporting by Ryan Vlastelica; Editing by Kenneth Barry)