* Libyan violence prompts investors to shun risk
* Oil prices spike to near 2-1/2 year high
* Dow falls 1.4 pct, S&P loses 2.1 pct, Nasdaq off 2.7 pct
* For up-to-the-minute market news see []
(Updates to close, changes byline)
By Chuck Mikolajczak
NEW YORK, Feb 22 (Reuters) - Wall Street suffered its worst
day since August on Tuesday as investors dumped stocks on
turmoil in oil exporter Libya, in what could be the start of a
long-anticipated pullback after a lengthy rally.
Rising volatility and heavy volume added heft to the
possibility of a larger pullback. With 9.68 billion shares
traded on the New York Stock Exchange, the American Stock
Exchange and Nasdaq, it was the highest volume session for the
month and the second-highest for the year.
The CBOE Volatility Index <.VIX>, Wall Street's so-called
fear gauge, surged 26.6 percent to end at 20.80, its highest
one-day jump since May 20, 2010.
"We've got some smoldering fires and it's an excuse for the
market to sell off," said Stephen Massocca, managing director
of Wedbush Morgan in San Francisco.
The benchmark Standard & Poor's 500 lost 2.05 percent, its
worst one-day percentage drop since Aug. 11.
"How significant a sell-off we get, the next 24 to 48 hours
is going to be important. If we can hold this 1,315 on the S&P
and hold the trendline, than we can probably get through this.
But any more weakness and there will probably be a cavalcade."
Oil prices held near a 2-1/2 year high as the Libyan unrest
cut supplies from the OPEC nation.
Heavy energy-consuming sectors were among the hardest-hit.
The Dow Jones Transports index <.DJT> lost 3.8 percent, with
FedEx Corp <FDX.N> down 5.1 percent at $93.29.
Despite the sharp pullback, the benchmark S&P 500 Index
managed to hold a key support level near 1,313, representing
highs reached earlier in February.
Many analysts have been anticipating a correction in a
market that saw the S&P double since hitting 12-year lows in
March 2009.
Still, optimism about the U.S. recovery appeared in a
report that showed consumer confidence rose in February to a
three-year high. For details, see []
The Dow Jones industrial average <> lost 178.46 points,
or 1.44 percent, to 12,212.79. The Standard & Poor's 500 Index
<.SPX> fell 27.57 points, or 2.05 percent, to 1,315.44. The
Nasdaq Composite Index <> dropped 77.53 points, or 2.74
percent, to 2,756.42.
Wal-Mart Stores Inc <WMT.N> fell 3.1 percent to $53.67
after the world's largest retailer posted its seventh straight
drop in U.S. sales. []
Libyan leader Muammar Gaddafi used tanks, helicopters and
warplanes to quell a growing revolt and scoffed at reports he
was fleeing after four decades in power. []
U.S. consumer confidence rose in February to a three-year
high on improved optimism about the economy and income
prospects, according to the Conference Board, a private group.
[]
Declining stocks outnumbered advancing ones on the NYSE by
2,715 to 351, while on the Nasdaq, decliners beat advancers by
2,306 to 377.
(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)
