US STOCKS-Dow posts biggest one-day drop since October as recession fears take hold

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* 2-year, 10-year Treasury yields invert for 1st time in 12yrs

* Germany and China report bleak economic data

* Macy's slides after cutting outlook; weighs on rivals

* Indexes drop: Dow 3.05%, S&P 2.93%, Nasdaq 3.02% (Updates to market close)

By Stephen Culp

NEW YORK, Aug 14 (Reuters) - Wall Street sold off sharply onWednesday as recession fears gripped the market after the U.S.Treasury yield curve temporarily inverted for the first time in12 years.

All three major U.S. indexes closed down about 3%, with theblue-chip Dow posting its biggest one-day point drop sinceOctober after 2-year Treasury yields surpassed those of 10-yearbonds, which is considered a classic recession signal.

Dire economic data from China and Germany suggested afaltering global economy, stricken by the increasinglybelligerent U.S.-China trade war, Brexit woes and geopoliticaltensions.

Germany reported a contraction in second-quarter grossdomestic product, and China's industrial growth in July hit a17-year low. urn:newsml:reuters.com:*:nL8N25A1D1urn:newsml:reuters.com:*:nL4N25A0U7

"It was all negative and not much positive today," saidChuck Carlson, chief executive officer at Horizon InvestmentServices in Hammond, Indiana. "We're outside of the earningsseason and markets are being batted around by news."

"It's a reactionary market right now and probably willcontinue to be," Carlson added. "My guess is we're probably infor this until after Labor Day."

Wednesday was the first time that yields for 2-year and10-year Treasuries had inverted since June 2007, months beforethe onset of the great recession, which crippled markets foryears. urn:newsml:reuters.com:*:nL2N25A0JK

The U.S. yield curve has inverted before every recession inthe past 50 years.

"It could be different this time," Carlson said. "Whenyou've got $15 trillion in global government debt at negativeyields, that's a new animal.

"Even if it is accurate in foreshadowing a recession, thatdoesn't mean it's coming tomorrow," he added.

The CBOE volatility index .VIX , a gauge of investoranxiety, jumped 4.58 points to 22.10.

The Dow Jones Industrial Average .DJI fell 800.49 points,or 3.05%, to 25,479.42, the S&P 500 .SPX lost 85.72 points, or2.93%, to 2,840.6, and the Nasdaq Composite .IXIC dropped242.42 points, or 3.02%, to 7,773.94.

Over 300 of the S&P 500's components are down 10% or morefrom their 52-week highs, according to Refinitiv data. More than180 of those stocks have fallen more than 20% from their 52-weekhighs, putting them in bear market territory.

All of the 11 major sectors in the S&P 500 closed innegative territory, with energy .SPNY , financials .SPSY , materials .SPLRCM , consumer discretionary .SPLRCD andcommunications services all falling 3% or more.

Interest rate-sensitive banks .SPXBK tumbled 4.3%.

Macy's Inc'sM.N shares plunged 13.2% after the departmentstore operator missed quarterly profit estimates and cut itsfull-year earnings estimates. urn:newsml:reuters.com:*:nL4N25A3HF

Rival department store operators Nordstrom IncJWN.N andKohls Corp KSS.N slid 10.6% and 11.0%, respectively.

A U.S. House of Representatives oversight panel called onMylan NV MYL.O and Teva Pharmaceutical Industries LtdTEVA.TA to turn over documents as part of a review intogeneric drug price increases. urn:newsml:reuters.com:*:nL2N25A07E

Mylan fell 8.5% while U.S.-listed Teva shares dipped 10.5%.

Facebook IncFB.O slid 4.6% on news that the EuropeanUnion's lead regulator is investigating how the social mediacompany handled data during the manual transcription of users'audio recordings. urn:newsml:reuters.com:*:nL8N25A511

Declining issues outnumbered advancing ones on the NYSE by a4.44-to-1 ratio; on Nasdaq, a 5.33-to-1 ratio favored decliners.

The S&P 500 posted eight new 52-week highs and 51 new lows;the Nasdaq Composite recorded 23 new highs and 282 new lows.

Volume on U.S. exchanges was 8.68 billion shares, comparedwith the 7.47 billion average over the last 20 trading days. (Reporting by Stephen Culp; additional reporting by NoelRandewichEditing by Leslie Adler) ((stephen.culp@thomsonreuters.com; 646-223-6076;))

This article appears in: Stocks , World Markets , Politics

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