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NEW YORK (CNNMoney.com) -- Stocks tumbled Wednesday morning, the first trading day of 2008, after a report showing contraction in the manufacturing sector raised worries about the threat of a recession.

The Dow Jones industrial average (INDU), the broader S&P 500 (INX) index and the tech-fueled Nasdaq (COMPX) composite all slumped more than 1 percent about 2 hours into the session.

Worries about how the fallout in the credit and housing markets will impact the economy dragged on stocks in the second half of last year and remained in focus at the start of 2008.

Adding to such worries: a December survey showing the first contraction in manufacturing activity since January 2007 and the weakest reading since April 2003.

The Institute for Supply Management's manufacturing index fell to 47.7 from 50.8 in November, versus forecasts for a drop to 50.5. A reading of 50 or above signals expansion in manufacturing.

Investors are also awaiting the minutes from the Federal Reserve's Dec. 11 policy meeting, due out at 2 p.m. ET. The release could provide clues about what the central bank plans to do with rates in upcoming meetings.

The Dow gained 6.4 percent, the S&P 500 added 3.5 percent and the Nasdaq climbed 9.8 percent in 2007, but analysts are expecting ongoing volatility this year.

Among blue chips, 26 out of 30 Dow components slid. Declines were led by Intel (INTC, Fortune 500), which fell on a Banc of America Securities downgrade, according to Briefing.com.

Banc of America also downgraded other stocks in the semiconductor sector, including Texas Instruments (TXN, Fortune 500) and National Semiconductor (NSM).

One of the few bright spots was Amazon.com (AMZN, Fortune 500), which rose 4 percent after Citi Investment Research upgraded it to "buy" from "hold."

Market breadth was negative. On the New York Stock Exchange, losers beat winners four to three on volume of 380 million shares. On the Nasdaq, decliners topped advancers two to one on volume of 620 million shares.

Treasury prices rallied, as investors sought safety in the comparatively safer haven of government debt, lowering the yield on the 10-year note to 3.94 percent from 4.03 percent late Monday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar slipped versus the euro and the yen.

U.S. light crude oil for February delivery surged near $98 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery rose $12.60 to $850.60 an ounce, a 28-year high.