* China and U.S. factory activity shrank in December
* Dow has worst start to the year since 2008
* Amazon top drag on S&P
* Indexes down: Dow 1.6 pct, S&P 1.5 pct, Nasdaq 2.1 pct (Updates to close)
By Caroline Valetkevitch
Jan 4 (Reuters) - U.S. stocks began 2016 sharply lower on Monday, with the Dow marking its worst start to a year since 2008, after weak Chinese economic data fanned fears of a global slowdown.
Indexes partly recovered late in the session, following a turnaround in oil prices that caused energy shares to cut losses. At its low for the day, the Dow was down 467 points and was headed for its worst first-day percentage drop since 1932.
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 sparked further concern as factory activity weakened unexpectedly in December, according to the Institute for Supply Management.
“There was the turmoil overnight overseas that kind of set the tone ... (but) all of the negatives out there have been out there for a while,” said Michael O‘Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
“The fact that we closed down on the year, the Fed tightened, it crystallized in investors’ minds that we’re not in the environment we were in throughout most of the recovery.”
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.
Nasdaq led the day’s decline and Amazon, down 5.8 percent at $636.99, weighed the most on the S&P 500 and Nasdaq, while the Nasdaq Biotech Index dropped 3.2 percent.
The Dow Jones industrial average closed down 276.09 points, or 1.58 percent, to 17,148.94, the S&P 500 lost 31.28 points, or 1.53 percent, to 2,012.66 and the Nasdaq Composite dropped 104.32 points, or 2.08 percent, to 4,903.09.
Both the S&P 500 and the Nasdaq had their worst starts to a year since 2001.
All 10 S&P sectors ended lower, but the energy index was down the least, with a loss of just 0.2 percent.
Crude oil ended a volatile session down slightly following concern about Middle East tensions, but Brent turned higher late.
Tesla fell 6.9 percent to $223.41. The electric car maker delivered 17,400 vehicles in the fourth quarter, just above the low end of its guidance.
About 8.5 billion shares changed hands on U.S. exchanges, above the 7.2 billion daily average for the past 20 trading days, according to Thomson Reuters data.
Declining issues outnumbered advancing ones on the NYSE by 2,127 to 977, for a 2.18-to-1 ratio on the downside; on the Nasdaq, 2,202 issues fell and 652 advanced for a 3.38-to-1 ratio favoring decliners.
The S&P 500 posted 1 new 52-week highs and 14 new lows; the Nasdaq recorded 12 new highs and 113 new lows. (Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by Saumyadeb Chakrabarty and Nick Zieminski)