At 9:56 a.m. ET the Dow Jones Industrial Average was down 371.95 points, or 1.50 percent, at 24,365.25, the S&P 500 was down 34.96 points, or 1.31 percent, at 2,629.80 and the Nasdaq Composite was down 123.76 points, or 1.73 percent, at 7,041.11.
Shares of Caterpillar, the world's largest heavy equipment maker, fell 9.13 per cent and had their worst day since 2011 after the company's quarterly profit widely missed Wall Street estimates, hit by softening demand in China and higher manufacturing and freight costs.
The S&P energy index dropped 1.6 percent as oil prices fell more than 2 percent after U.S. companies added rigs for the first time this year, a signal that crude output may rise further.
The S&P 500 began a crucial week for trade and monetary policy sharply lower as the sector bellwethers doused enthusiasm over the young earnings season.
Since China is one of the world's largest commodities importers, its slowing economy is having a ripple effect on global commodities prices, which can also hurt the company's equipment sales in the mining and oil and gas industry, for example.
China, the world's second-largest economy, generated its slowest economic growth previous year since 1990, and the effect is being felt widely among the many US companies that rely on China for sales, especially industrial and technology companies.
Ahead of the opening bell, chipmaker Nvidia announced that it lowered the expected revenue for the fourth quarter to $2.2 billion from $2.7 billion.
The Philadelphia semiconductor index slumped 2.09 per cent, while the S&P technology index dropped 1.40 per cent.
Tech giants Microsoft and Apple were also weighed down by China concerns.
US, China to Discuss Trade Relations on January 30,31
Trump has threatened to raise tariffs on $200 billion to 25 percent from 10 percent on March 2 if an agreement can not be reached. Beijing has resumed some purchases of US soybeans but has not formally suspended those tariffs.
Wall Street is keyed in on China and how its slowing economy will play out for companies ranging from Caterpillar to Apple. However, they expect gaps to remain on key problems such as China's blueprint for state-led development of leading technologies.
In the fourth quarter, Caterpillar's revenue increased across all of its regional businesses, with the largest rise in North America, its biggest market by value.
"The retail sales for Asia-Pacific did show a decline in December, but this is on the back of two strong years", chief financial officer Andrew Bonfield said by phone.
USA crude settled down 3.17 percent at $51.99 per barrel and Brent fell 2.77 percent to settle at $59.93. Chinese construction demand was up 40 percent in 2018 after doubling in 2017. Economic growth in Europe slowed in the last half of 2018 and indicators at the start of this year have been weak.
West Texas Intermediate oil futures fell 1.7 per cent to US$52.78 a barrel. NY time. The Nasdaq 100 Index lost 2 per cent. Brent crude, used to price global oils, gave up $1.14 to $60.50 per barrel.
Volume on United States exchanges was 7.3 billion shares, compared with the 7.7 billion-share average over the last 20 trading days.
The dollar slipped to 109.36 Japanese yen from 109.64 yen late Friday.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.74 per cent.