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US: Stocks fall on China worries; Dow loses 1.6%

US stocks opened little changed on Tuesday as markets stabilized after a bruising selloff on the first trading day of the year.

[NEW YORK] US stocks opened 2016 on a dreary note on Monday, falling sharply on worries about plunging Chinese equities and a brewing diplomatic crisis between Saudi Arabia and Iran.

The Dow Jones Industrial Average shed 276.09 points (1.58 per cent) at 17,148.94.

The broad-based S&P 500 fell 31.28 (1.53 per cent) to 2,012.66, while the tech-rich Nasdaq Composite Index dropped 104.32 (2.08 per cent) to 4,903.09.

The losses in the US came on the heels of bruising trading sessions in Asia and Europe after the Chinese stock market fell about seven percent on a poor report on manufacturing activity.

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Analysts also pointed to concerns about the breakdown in relations between regional rivals Saudi Arabia and Iran following violent protests in Tehran against the Saudi execution of a prominent Shiite cleric and activist.

"This situation has gotten the market off to a very ugly start," said Peter Cardillo, chief market economist at First Standard Financial.

Adding to the bad news was a report from the Institute for Supply Management showing US manufacturing activity contracted in December for the second straight month.

Some of the biggest equity winners from 2015 fell hard in a decline analysts attributed to profit-taking. Amazon tumbled 5.8 per cent, Netflix 3.9 per cent and Priceline, Facebook and Google parent Alphabet all around 2.3 per cent.

US-traded Chinese stocks were in retreat, including Alibaba and Baidu, which sank 5.6 per cent and 2.7 per cent, respectively.

However, retail stocks enjoyed an up day. Wal-Mart Stores added 0.3, per cent, Macy's 2.3 per cent, Target 1.3 per cent and Best Buy 0.7 per cent.

Pharma company Baxalta climbed 5.5 per cent on reports it is in advanced talks to be acquired by Shire for about US$32 billion.

Tesla Motors tumbled 6.9 per cent as it announced it shipped 17,400 cars in the fourth quarter, near the low end of the company's projected 17,000-19,000 range.