* 73 pct Dow, 67 pct S&P stocks in correction territory
* All 10 S&P sectors down; 8 in the red for the year
* Energy stock hit as U.S. crude falls below $40/barrel
* HP and Salesforce top S&P gainers after results
* Indexes down: Dow 1.89 pct, S&P 1.90 pct, Nasdaq 2.06 pct (Updates prices)
By Tanya Agrawal
Aug 21 (Reuters) - U.S. stocks slumped more than 2 percent in early afternoon trading on Friday, with the S&P trading below 2000 and the Dow about 150 points shy of moving into correction territory, as fears of a China-led global slowdown were heightened after grim data overnight.
About three-fourths of the 30 stocks on the Dow Jones industrial average and two-thirds of S&P 500 components were in correction territory, meaning their session lows were at least 10 percent below their 52-week highs.
The Russell 2000 also entered correction territory.
The selloff was broad based, with all 10 major S&P sectors in the red, led by the energy sector as U.S. crude oil fell below $40 a barrel for the first time since the 2009 financial crisis. Eight of the 10 sectors were down more than 1 percent.
The CBOE Volatility index, a measure of the premium traders are willing to pay for protection against a drop in the S&P 500, jumped as much as 27.9 percent to 24.49, a more than 20-month high. The index also notched its biggest weekly gain for the year.
Apple fell 3.8 percent to $108.34 as investors continued to fret over its prospects in China, a key growth market for the iPhone maker. The stock was the biggest drag on the S&P and the Nasdaq.
World stock markets tumbled towards their worst week of the year on Friday and commodities had another bruising day after data from China showed its manufacturing sector shrank at the fastest pace since 2009, exacerbating worries about its health.
"I think there's no shortage of things people can cite, from the movement in currencies, to the weakness in commodities and fears about China," said Thomas Lee, managing partner at Fundstrat Global Advisors in New York.
"I think what everyone is looking for is a sign that markets are going to bottom. I don't think it's necessarily going to happen today, but I think we're getting very close."
At 13:25 EDT (1725 GMT) the Dow Jones industrial average was down 321.43 points, or 1.89 percent, at 16,669.26.
The S&P 500 was down 38.75 points, or 1.9 percent, at 1,996.98 and the Nasdaq Composite was down 100.71 points, or 2.06 percent, at 4,776.78.
The rout in U.S. stocks for the fourth straight day put the Nasdaq on track for its steepest weekly fall since August 2011.
The technology and the energy were the worst performing sectors, down about 2.4 percent. The consumer staples index fell 1.4 percent, moving into the red for the year. Now eight of the 10 sectors are negative for the year.
Two bright spots were HP, up 3 percent, and Salesforce, up 2 percent. The stocks were the biggest gainers on the S&P 500 after their quarterly results.
Netflix fell 5.5 percent to $106.33 after a Wall Street Journal report on Thursday said U.S. states are eyeing taxes on video and live-streaming services.
Deere fell 8 percent to $83.34 after the tractor maker's quarterly profit declined 40 percent.
Declining issues outnumbered advancing ones on the NYSE by 2,535 to 497. On the Nasdaq, 1,885 issues fell and 874 advanced.
The S&P 500 index showed no new 52-week highs and 65 new lows, while the Nasdaq recorded 11 new highs and 251 new lows. (Additional reporting by Caroline Valetkevitch; Editing by Savio D'Souza)