U.S. stocks extended losses and the S&P 500 hit a session low in Friday afternoon trading after Federal Reserve Chairman Jerome Powell said the U.S. central bank will likely need to keep raising interest rates to keep inflation under control.

In a speech in Chicago on the U.S. economic outlook, Powell said the labor market appeared close to full employment. It was his first speech on the economic outlook since taking over as chairman on Feb. 5.

Stocks already were sharply lower before the comments following U.S. President Donald Trump's latest tariff threat late Thursday on Chinese imports, which revived fears of a trade war between the two countries.

"The market wouldn't be acting nearly as negative to all the news in general if it would not be in a vulnerable state already," said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.

"It's got higher values, financial liquidity is contracting, you came into the year with a little too much optimism, you got rising rates going on, you got rising inflation fears," he said.

Trump threatened to slap $100 billion more in tariffs on Chinese imports, while Beijing said it was fully prepared to respond with a "fierce counter strike".

All S&P main indexes were down sharply, but industrials, financials, energy and materials sectors led the declines, with S&P industrials down 2.7 percent.

The Dow Jones Industrial Average fell 715 points, or 2.7 percent, to 23,799, the S&P 500 lost 70 points, or 2.7 percent, to 2,592 and the Nasdaq Composite dropped 182 points, or 2.6 percent, to 6,892.

Fears of a trade war since Trump announced tariffs on steel and aluminum imports more than a month ago have kept investors on edge over concerns that such protectionist measures would hit global economic growth.

"It's a reaction to concerns about the administration's approach to trade. The market has vacillated between writing it off as just talk and assuming there could be a serious problem," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

Before the session started, a Labor Department report showed nonfarm payrolls increased by a smaller-than-expected 103,000 last month. While annual growth in average hourly earnings rose to 2.7 percent, it stayed below the 3 percent that economists estimate is needed to lift inflation toward the Federal Reserve's 2-percent target.