* US stocks down sharply with S&P 500 down more than 2% * Dollar falls after Trump comments on China tariffs * Yen still on track for losses for the week after political changes (Updates to late afternoon, adds oil settlement prices) By Caroline Valetkevitch NEW YORK, Oct 10 (Reuters) – Stocks fell sharply, with the S&P 500 and Nasdaq down more than 2% each, while Treasury yields dropped and the U.S. dollar weakened on Friday after President Donald Trump said he was weighing a "massive increase" in tariffs on Chinese goods. Technology-related shares were among the biggest decliners on Wall Street, with an index of semiconductors down 5.4%. U.S.-listed shares of Chinese firms also dropped. E-commerce firm Alibaba Group Holding was down 9% and JD.com Inc declined 7.2%. Oil prices fell more than $2 a barrel as Trump's threat cast a shadow over the demand outlook, while gold rallied above the $4,000 an ounce milestone for a second time this week. Trump said there was no reason to meet with China's President Xi Jinping in two weeks in South Korea as planned, adding in a Truth Social post that the U.S. is calculating a massive increase in tariffs on Chinese imports. The step could revive a destabilizing tit-for-tat trade war that Washington and Beijing paused amid painstaking diplomacy earlier this year. The U.S. president complained on social media about what he characterized as China's plans to hold the global economy hostage after China dramatically expanded its rare earth element export controls on Thursday. "He's caught the market off guard again and thrown more question marks into a market that is being questioned about a very high degree of enthusiasm and being sort of scrutinized for having too much fluff built into it," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. The Dow Jones Industrial Average fell 710.72 points, or 1.53%, to 45,647.70, the S&P 500 fell 146.09 points, or 2.18%, to 6,588.56 and the Nasdaq Composite fell 655.35 points, or 2.84%, to 22,369.57. U.S. stock indexes had been hitting record highs this week, lifted in part by expectations of further interest rate cuts from the Federal Reserve and optimism about artificial intelligence-related deals. MSCI's gauge of stocks across the globe fell 17.58 points, or 1.77%, to 975.89. European shares closed 1.25% lower, erasing weekly gains in a last-minute slide tied to the fresh threats from Trump. The benchmark STOXX 600 had its worst intraday drop in more than a month. Benchmark U.S. yields extended losses from earlier in the session after the Trump comments, with the 10-year Treasury yield hitting its lowest level since mid-September. U.S. sovereign debt had been in a holding pattern in recent days as a U.S. federal government shutdown, which started October 1, halted the production of crucial economic indicators. The yield on benchmark U.S. 10-year notes fell 9.3 basis points to 4.055%, from 4.148% late on Thursday. The dollar index, which measures the greenback against a basket of currencies, fell 0.42% to 98.97, with the euro up 0.4% at $1.1609. Against the Japanese yen, the dollar weakened 0.89% to 151.7. The yen was still headed for a decline for the week against the dollar following Japan's political changes and rate outlook uncertainty. The Japanese currency has dropped on concerns that the Bank of Japan may not hike interest rates again this year after fiscal dove Sanae Takaichi's surprise victory to lead the ruling party. Japanese Finance Minister Katsunobu Kato said on Friday that the government was concerned about excessive volatility in the foreign exchange market. In France, leftist party chiefs said after talks with President Emmanuel Macron that Macron will not name a prime minister from the left later on Friday. French blue chip stocks dropped 2% this week. Markets were rocked on Monday after Sebastien Lecornu tendered his and his government's resignation just hours after announcing a cabinet line-up. U.S. crude fell $2.61 to settle at $58.90 and Brent fell $2.49 to settle at $62.73. Spot gold rose 0.73% to $4,004.00 an ounce. (Additional reporting by Marc Jones in London and Purvi Agarwal; Editing by Susan Fenton, Nick Zieminski and Edmund Klamann)
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