The Dow Jones industrial average fell 179.72 points, or 1.09 per cent, to 16,330.47, the S&P 500 lost 24.23 points, or 1.23 per cent, to 1,942.74 and the Nasdaq Composite dropped 72.23 points, or 1.5 per cent, to 4,756.72.
More worries about slower growth in China pushed commodities to two-week lows, with copper prices and industrial metals leading losses. US crude oil also settled lower.
Shares of Volkswagen suppliers BorgWarner, Honeywell and Delphi Automotive fell after the German carmaker admitted to cheating on vehicle emission tests. BorgWarner shares were down 7.6 per cent at $39.37, while Honeywell fell 1.7 per cent to $96.04 and Delphi lost 3.6 per cent to $74.44.
Biotech stocks fell for a second day after Democratic presidential candidate Hillary Clinton said she would propose a $250 (£163) monthly cap on prescription drugs. The Nasdaq Biotech Index was down 1.7 per cent.
“It's China. It’s the Fed. It’s slowing global growth. The news on Volkswagen is overhanging the auto industry. There is a bit of a bubble in the healthcare area,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
The Fed’s decision last week to keep rates near zero has left investors guessing when the central bank will make its big move, increasing volatility in the market.