* China and U.S. factory activity shrank in December
* Dow makes worst start to the year since 1932
* Amazon top drag on S&P
* Indexes down: Dow 2.48 pct, S&P 2.37 pct, Nasdaq 2.81 pct (Updates to early afternoon)
By Abhiram Nandakumar
Jan 4 (Reuters) - The Dow Jones industrial average was set for its worst start to a year since 1932 as stock markets tanked after weak Chinese economic data reignited fears of a global slowdown.
Surveys showed factory activity in the world's second-largest economy shrank sharply in December, sparking a 7 percent slide in Chinese shares that triggered a trading halt.
Adding to investors' worries, China's central bank fixed the yuan at a 4-1/2 year low, further weakening it against the dollar.
U.S. data was also not encouraging, with factory activity shrinking unexpectedly in December, according to the Institute for Supply Management.
"Those are violent New Year fireworks. That's quite a way to start the day off," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.
The Dow Jones industrial average was down 432.27 points, or 2.48 percent, at 16,992.76, set for its worst day in four months. All 30 components were in the red, with Goldman Sachs' 2.8 percent decline making it the biggest drag.
The S&P 500 made its worst start to a year since 2001, down 48.49 points, or 2.37 percent, at 1,995.45, at 12:07 p.m. ET (1707 GMT).
The Nasdaq Composite index was down 140.70 points, or 2.81 percent, at 4,866.72.
"The old adage is 'if January goes, so goes the year and if the first week goes, so goes the whole month and so on', so it's not a good start," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
The selloff was widespread but not as deep as the slide caused by worries of a China-led global slowdown in August when the Dow tumbled more than 1,000 points at one point.
All 10 major S&P sectors were lower on Monday, led by a 2.52 percent decline in financials.
Index heavyweights JPMorgan was down 3.5 percent at $63.28, while Apple fell 2 percent to $103.09.
Amazon weighed the most on the S&P and Nasdaq, falling 5.9 percent to $636.08.
Crude oil prices reversed course, losing earlier gains from a breakdown in diplomatic ties between Saudi Arabia and Iran raised concerns of supply restrictions.
Gold jumped 2 percent, while benchmark U.S Treasury yields hit two-week lows as investors fled to safe-haven investments.
Netflix was down 6.6 percent at $106.88 after Baird cut its rating on the stock to "neutral". The stock was the biggest percentage loser on the S&P 500.
Tesla was down 7.9 percent at $221.03. The electric car maker said it delivered 17,400 vehicles in the fourth quarter, just about the low end of its guidance.
Among the few bright spots, Baxalta was up 3.3 percent at $40.30 as a buyout from UK drugmaker Shire loomed closer.
Declining issues outnumbered advancing ones on the NYSE by 2,578 to 468. On the Nasdaq, 2,339 issues fell and 435 advanced.
The S&P 500 index showed no new 52-week highs and 13 new lows, while the Nasdaq recorded eight new highs and 98 new lows. (Reporting by Abhiram Nandakumar in Bengaluru and Chuck Mikolajczak in New York; Editing by Saumyadeb Chakrabarty)