All three major indexes fell more than 1 percent in early trading on Wednesday as investors looked for safe havens after China allowed its currency to weaken further and oil prices fell to their lowest in more than 11 years.
Investors were also nervous about rising geopolitical tensions after North Korea said it had successfully tested a hydrogen bomb and Saudi Arabia cut ties with Iran.
The People's Bank of China on Wednesday set the yuan's official midpoint rate at its weakest level in 4-1/2 years, while a PMI survey showed services sector activity expanded at its slowest rate in 17 months in December in the country.
Gold hit a four-week high, while the U.S. dollar touched a one-month high against a basket of major currencies.
"While geopolitical concerns generally aren't long lasting, rising incidents have investors and the markets concerned," said Peter Cardillo, chief market economist at First Standard Financial in New York.
At 9:36 a.m. ET (1436 GMT) the Dow Jones industrial average was down 241.88 points, or 1.41 percent, at 16,916.78, the S&P 500 was down 27.41 points, or 1.36 percent, at 1,989.3 and the Nasdaq Composite was down 65.35 points, or 1.34 percent, at 4,826.08.
All the 10 major S&P 500 sectors were lower with the energy index's 2.54 percent fall leading the decliners. Shares of oil majors Exxon and Chevron were down over 2 percent and weighed the most on the sector.
The year was off to a shaky start after weak economic data from China reignited fears of a global economic slowdown and as the dip in oil prices show no signs of abating.
U.S. Federal Reserve Vice Chair Stanley Fischer told CNBC in an interview that levels of uncertainty had risen after events in China and North Korea.
Fischer said the Fed did not know enough at the moment to comment on how many hikes there would be in 2016 but that four hikes were "in the ballpark" in his view.
Investors will get a clearer picture into the Fed's thinking when the central bank releases minutes from its Dec. 15-16 meeting, where it raised interest rates for the first time in nearly a decade. The minutes are expected at 2 p.m. ET.
Data showed that private employers added 257,000 jobs, far ahead of the 192,000 increase expected by economists polled by Reuters. The data comes ahead of a more comprehensive non-farm payroll report on Friday.
The U.S. trade deficit narrowed in November likely as efforts by businesses to reduce an inventory overhang pushed imports of goods to their lowest level in nearly five years. The Commerce Department said the trade gap fell 5.0 percent to $42.4 billion.
Apple was down 1.6 percent at $101.07, a day after the Nikkei reported that the company is expected to cut production of its latest iPhone models due to mounting inventories.
Yahoo was down 1.2 percent at $31.78 after investor Starboard said the company should change its management, board and its business strategy.
Chipotle fell 1.6 percent to $441.90 after the company said an incident involving norovirus, would further hurt same-store sales in the fourth quarter, leading to a 14.6 percent fall.
Declining issues outnumbered advancing ones on the NYSE by 2,507 to 270. On the Nasdaq, 2,022 issues fell and 330 advanced.
The S&P 500 index showed no new 52-week highs and 24 new lows, while the Nasdaq recorded seven new highs and 59 new lows.
(Reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty)