NEW YORK | Worries about an economic slowdown in China fueled a steep drop in commodity prices Monday, spooking investors and giving the Dow Jones industrial average its worst day of the year.
The trigger for the sell-off came from China, where the world's second-largest economy expanded 7.7 percent in the first three months of the year, well below forecasts of 8 percent or better. That news pummeled copper, oil and other commodities. Shares of oil and mining companies fared the worst because China is a huge importer of their products.
The decline came after a pile of negative economic reports. In addition to the concerns about China, a separate report showed weak manufacturing in the Northeast, and a home builders' survey indicated housing activity isn't going to be strong, either, said Steven Ricchiuto, chief economist for Mizuho Securities.
"People are realizing that the global economy isn't as strong as they expected it to be," he said.
The pullback disrupted, at least for the moment, the phenomenal rally that has sent the Dow up 13 percent and the Standard & Poor's 500 index up 11 percent in 2013. Both indexes marked record highs only last Wednesday. But the market's exceptional performance has fueled widespread speculation about an inevitable retreat.
Concerns that Cyprus and other troubled European countries may sell gold to raise cash have also weighed on prices for precious metals, said Dan Greenhaus, chief global strategist at the brokerage BTIG.
The Dow tumbled 265.86 points to close at 14,599.20, a drop of 1.8 percent. Caterpillar, a maker of heavy equipment used by miners, led the index lower, falling 3 percent to $82.27. The S&P 500 index slumped 36.48 points to 1,552.37, a loss of 2.3 percent.
The S&P was led by Freeport-McMoRan Copper & Gold, which fell 8 percent to $29.27. Analysts at Citigroup placed a "sell" rating on the mining giant on the expectation that copper prices will continue sliding.
The Nasdaq composite fell 78.46 points, or 2.4 percent, to 3,216.49.
It was the biggest drop for the stock market since Nov. 7 — Election Day — last year.
Of the 10 industry groups in the S&P 500, materials and energy stocks fared the worst, losing 4 percent. Indexes of small companies and transportation stocks, which are more vulnerable to swings in the economy, also fell 4 percent.
Crude oil prices hit their lowest level since mid-December, sliding $2.58 to finish at $88.71 in New York trading. And gold dropped $140, plunging below $1,400 an ounce for the first time in two years as a sell-off in metals continued from last week. Gold has now slumped $203 an ounce over the past two days.