* China factory activity shrank in December
* Microsoft top drag on S&P, Goldman on Dow
* Indexes down: Dow 2.61 pct, S&P 2.59 pct, Nasdaq 3.14 pct (Adds details, changes comment, updates prices)
By Abhiram Nandakumar
Jan 4 (Reuters) - U.S. stock indexes tumbled more than 2 percent on the first trading day of 2016 - with the Dow losing more than 400 points - 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.
“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 455.17 points, or 2.61 percent, at 16,969.86, set for its worst day in four months.
At 11:12 a.m. ET (1640 GMT), the S&P 500 was down 52.95 points, or 2.59 percent, at 1,990.99 and the Nasdaq Composite index was down 157.34 points, or 3.14 percent, at 4,850.07.
U.S. data was also not encouraging. Factory activity shrank unexpectedly to 48.2 in December, according to the Institute for Supply Management, missing a reading of 49 expected by economists.
“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 - all 10 major S&P sectors were lower, led by a 2.8 percent decline in the tech sector .
Microsoft was down 3.7 percent at $53.41 and was the biggest drag on the S&P 500, while Amazon weighed the most on Nasdaq, falling 5.9 percent to $636.08.
Apple was down 2 percent at $103.09. Goldman Sachs was down 2.8 percent at $175.26 and was the biggest drag on the Dow.
Crude oil prices rose after a breakdown in diplomatic ties between Saudi Arabia and Iran raised concerns of supply restrictions.
Gold jumped more than 1.5 percent while benchmark U.S Treasury yields hit two-week lows as investors fled to safe-haven investments.
Netflix was down 7.2 percent at $106.07 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 8.3 percent at $220.17. The electric car maker said it delivered 17,400 vehicles in the fourth quarter, just about the low end of its guidance.
Among the bright spots, Baxalta was up 2.7 percent at $40.06 as a buyout from UK drugmaker Shire loomed closer.
Declining issues outnumbered advancing ones on the NYSE by 2,684 to 347. On the Nasdaq, 2,366 issues fell and 369 advanced.
The S&P 500 index showed no new 52-week highs and 13 new lows, while the Nasdaq recorded 8 new highs and 85 new lows. (Reporting by Abhiram Nandakumar in Bengaluru; Editing by Saumyadeb Chakrabarty)