By Anora M. Gaudiano and Barbara Kollmeyer, MarketWatch

Major indexes see biggest weekly decline since January 2016

U.S. stocks ended sharply lower on Friday, with the main benchmarks recording their biggest weekly losses in more than two years as concerns over a potential trade war with China continued to worry investors.

The selloff on Wall Street was triggered by President Trump's Thursday announcement of tariffs on at least $50 billion of Chinese goods and the retaliatory response from China.

Markets largely shrugged off positive economic data and Trump's signing of a $1.3 trillion spending bill that averted another government shutdown.

What are the main benchmarks doing?

The Dow Jones Industrial Average dropped 424.69 points, or 1.8%, to 23,533.20, as all but two components ended in negative territory. That marked the lowest close for the Dow of 2018, taking out the previous closing low set in early February. The blue-chip index fell 5.7% over the week and is now down nearly 5% since the start of the year. Shares of 3M Co. (MMM) and Goldman Sachs Group Inc.(GS) dropped 3.9% and 3.5% respectively.

The S&P 500 index slumped 55.43 points, or 2.1%, to end at 2,588.26, with all of the 11 main sectors closing lower. Financials and technology stocks led decliners, down nearly 3%. The benchmark index lost 6% over the week and is down 3.2% year to date.

The Nasdaq Composite Index declined 174.01 points, or 2.4%, to 6,992.67 and posted a 6.5% loss over the week.

Weekly losses for all three benchmarks were the steepest since January 2016, when markets were routed on fears of global economic slowdown.

Meanwhile, the Cboe Volatility Index rose 8% to 25.17, above its long-term average of 20.

What's driving markets?

Trump said that he signed the spending bill, "as a matter of a national security," adding there are "a lot of things I'm unhappy about in this bill." Trump criticized Congress for passing the spending package without leaving enough time to read the plan before funding expires at the end of the day.

Market participants instead focusing on uncertainty surrounding tariff negotiations with China.

Earlier, China reacted to the Trump administration's plans to impose tariffs (http://www.marketwatch.com/story/trumps-china-tariffs-a-fight-for-control-over-robots-wireless-other-future-technologies-2018-03-22), as Beijing's commerce ministry fired back with threats of tariffs against $3 billion in U.S. goods (http://www.marketwatch.com/story/china-plans-3-billion-in-retaliatory-tariffs-against-us-goods-2018-03-22).

China stopped short of penalties on the biggest pawns in a potential trade war, leaving off soybeans, sorghum and Boeing aircraft, indicating Beijing may be looking for leverage in any negotiations with the U.S.

The White House late Thursday formally approved reprieves on previously announced global metals tariffs for the European Union (http://www.marketwatch.com/story/eu-plus-six-other-nations-get-temporary-us-tariff-reprieve-2018-03-23) plus six other nations, including Canada and Mexico.

Read:Here's why the stock market took the China tariffs so hard (http://www.marketwatch.com/story/heres-why-the-stock-market-took-the-china-tariffs-so-hard-2018-03-22)

Read:Trump, Xi enter rockier phase as U.S.-China trade fight heats up (http://www.marketwatch.com/story/trump-xi-set-to-undergo-rockier-phase-as-trade-fight-heats-up-2018-03-22)

What are the data showing?

Durable-goods orders (http://www.marketwatch.com/story/durable-goods-orders-snap-back-with-31-gain-as-business-investment-surges-2018-03-23)jumped 3.1% in February, largely reversing a big drop at the start of the year and posting the largest gain since last summer.

Sales of newly constructed homes (http://www.marketwatch.com/story/new-home-sales-chug-higher-in-february-2018-03-23)were little changed in February, with a 0.6% decline compared with the previous month. January's tally was raised substantially. The February selling pace was 0.5% higher than a year ago at a 618,000 seasonally adjusted annual pace.

Atlanta Fed President Raphael Bostic said he is likely to support more interest-rate hikes this year (http://www.marketwatch.com/story/bostic-says-he-is-likely-to-support-more-rate-hikes-this-year-2018-03-23), saying there are upside risks to both GDP and employment as well as building, if still modest, inflation pressures.

What are strategists saying?

"There was plenty of good news this morning: durable goods and the signing of the spending bill, but investors could not shake off uncertainty created by the Trump administration when it comes to trade with China," said Erin Browne, head of asset allocation at UBS Asset Management.

"Investor may also be concerned about weakening dollar in an environment when inflation is rising," Browne said.

She noted that positioning and a run-up in financials and technology stocks may have set up investors to flee these sectors for now. Both sectors lost more than 7% over the week.

"Investors had been long financials and technology stocks since December and with higher interest rates, the unwind is hitting these sectors the most," Browne said.

Read:'I don't think this is a trade war,' says veteran Wall Street strategist (http://www.marketwatch.com/story/i-dont-think-this-is-a-trade-war-says-veteran-wall-street-strategist-2018-03-23)

What stocks are in focus?

Micron Technology Inc.(MU) shares fell 8% after the company posted an earnings beat late Thursday, but also announced plans to spend money building out its fabrication sites.

Read:Micron bets that memory demand is here to stay (http://www.marketwatch.com/story/micron-bets-that-memory-demand-is-here-to-stay-2018-03-22)

Dropbox Inc. made its debut on Friday (http://www.marketwatch.com/story/dropboxs-stock-soars-in-its-debut-to-push-market-cap-above-10-billion-2018-03-23), with the stock soaring 35% to $28.48. The company priced its initial public offering at $21 a share late Thursday.

Nike Inc.(NKE) shares gained by 0.3% after the shoe-and-apparel company topped sales expectations (http://www.marketwatch.com/story/nike-swings-to-loss-but-sales-beat-expectations-shares-rise-2018-03-22) even though it swung to a fiscal third-quarter loss.

Read:Nike CEO says company has 'deep leadership bench' after reshuffle (http://www.marketwatch.com/story/nike-has-deep-leadership-bench-says-ceo-2018-03-23)

Shares of Kroger Co.(KR) and Target Corp(TGT) shot higher in early trade after reports that the two companies are in merger talks but ended the session lower. CNBC has raised questions (https://www.cnbc.com/2018/03/23/shares-of-target-and-kroger-jump-on-report-of-possible-merger-talks.html) about the likelihood of such a hookup. Shares of Kroger closed 0.5% lower, while those for Target fell 1.5%.

Shares of Foot Locker Inc.(FL) rallied 4.4% after reports of securities class action lawsuit against the sports retailer.

What are other markets doing?

The ICE U.S. Dollar Index fell 0.4%, with the dollar hitting its worst levels against the Japanese yen since Trump's November 2016 election victory.

Gold (http://www.marketwatch.com/story/gold-rallies-as-investors-seek-shelter-from-global-trade-tensions-2018-03-23) ended at $1,349.90 an ounce--the highest finish since Feb. 16.

European equities finished weaker across the board, and Asian markets also suffered losses (http://www.marketwatch.com/story/asian-markets-strengthen-after-fed-raises-rates-2018-03-21).

Oil futures (http://www.marketwatch.com/story/oil-tips-higher-on-fresh-sign-for-continued-opec-production-curbs-2018-03-23) rose 1.9% to $65.54 a barrel on more indications that OPEC could maintain production curbs into 2019.

(END) Dow Jones Newswires

March 23, 2018 16:48 ET (20:48 GMT)