Updates to afternoon

By Stephen Culp

NEW YORK, Oct 10 (Reuters) - Wall Street tumbled on Friday after President Donald Trump rattled markets by unleashing a string of bellicose threats against China in retaliation for Beijing tightening rare earth restrictions.

In a post on Truth Social, Trump said he is weighing a "massive" tariff increase on Chinese imports and said there is no reason to meet with China's President Xi Jinping in two weeks as planned, adding that there are "many other countermeasures" under consideration.

The tirade shocked markets and threatened further damage to already strained relations between the world's two largest economies.

All three major U.S. stock indexes sold off sharply in the wake of Trump's remarks, erasing the likelihood that the Nasdaq or the S&P 500 would register weekly gains, despite having touched record closing highs in recent sessions.

"We were in pretty prime position for something like this to really send the market lower that obviously a re-escalation with China is bad news," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. "(It's) unexpected. The lack of news in recent months seemed to point towards some sort of continued de-escalation or trade deal with China. Clearly this unravels some of that."

Trump's erratic trade policies have rattled markets since his April 2 "liberation day" tariff announcement, with on-again, off-again trade negotiations causing turbulence across asset classes.

The Dow Jones Industrial Average .DJI fell 530.63 points, or 1.14%, to 45,829.11, the S&P 500 .SPX lost 115.29 points, or 1.71%, to 6,619.82 and the Nasdaq Composite .IXIC lost 539.47 points, or 2.34%, to 22,485.16.

The Philadelphia SE Semiconductor Index .SOX dropped 3.7%, among the worst hit after Trump's announcement.

China produces over 90% of the world's processed rare earths and rare earth magnets, which are critical for products ranging from electric vehicles and aircraft engines to military radars.

Renewed tensions between the two largest global economies could trigger major supply chain disruptions, particularly for companies in technology, EV and defense space.

The CBOE volatility Index .VIX, viewed as a reflection of market anxiety, touched its highest level in a month.

U.S.-listed shares of Chinese companies dropped sharply, with heavyweights Alibaba Group Holding BABA.N, JD.com Inc JD.O and PDD Holdings PDD.O down between 6.4% and 8.2%.

Qualcomm QCOM.O fell 5.6% after China's market regulator said the country had launched an antitrust investigation into the semiconductor manufacturer over its acquisition of Israel's Autotalks.

The U.S. government is currently in its 10th day of shutdown as a congressional impasse has so far yielded few signs of progress or serious negotiation. This has resulted in a data blackout, with official government economic indicators postponed for the time being.

Still, data from independent sources continues unabated. The University of Michigan released its preliminary take on October consumer sentiment, which is drifting along near historic lows as high prices and weakening job prospects remain at the forefront of consumer worries.

In the absence of official data, investors look to the U.S. Federal Reserve for clues regarding near-term interest rate cuts.

Fed Governor Christopher Waller said that while private employment data continues to show labor market weakness, the central bank should act with caution when reducing the Fed funds target rate as it evaluates the economy.

St. Louis Fed President Alberto Musalem echoed that sentiment, saying that another rate cut could be warranted as insurance against a weakening labor market. "I believe that we have to tread with caution" before monetary policy becomes too accommodative, he said.

A spate of large financial firms - including JPMorgan Chase JPM.N, Goldman Sachs GS.N, Citigroup C.N, and Wells Fargo WFC.N - is set to release quarterly results on Tuesday, marking the unofficial launch of third-quarter earnings season.

Analysts currently expect third-quarter S&P 500 earnings growth of 8.8% year-on-year, on aggregate, compared with annual growth of 13.8% last quarter and 9.1% in Q3 2024, according to LSEG data.

Declining issues outnumbered advancers by a 3.5-to-1 ratio on the NYSE. There were 202 new highs and 150 new lows on the NYSE.

On the Nasdaq, 890 stocks rose and 3,775 fell as declining issues outnumbered advancers by a 4.24-to-1 ratio.

The S&P 500 posted 18 new 52-week highs and 17 new lows while the Nasdaq Composite recorded 96 new highs and 117 new lows.

(Reporting by Stephen Culp; Additional reporting by Niket Nishant, Sukriti Gupta, Purvi Agarwal and Johann M Cherian in Bengaluru; Editing by Aurora Ellis)

((stephen.culp@thomsonreuters.com))