Wall Street sold off on Monday, pulled lower by further weakness in oil prices as energy shares led declines, with major indexes retreating after last week's strong gains.
Oil prices fell 6 per cent on concerns of oversupply after news that Iraq's output reached a record last month.
The S&P energy group .SPNY dropped 4.5 per cent, the worst performing sector. Exxon and Chevron each fell more than 3 per cent, while ConocoPhillips tumbled 9.2 per cent after Barclays said the company should cut its dividend by at least 75 per cent.
The major indexes each fell more than 1 per cent, reversing much of a two-session rally that marked Wall Street's first week of gains in the year. All 10 major S&P sectors finished the session lower.
During the poor start for the year for US stocks, their performance has closely correlated with the price of oil. The commodity's dramatic 1-1/2-year slide has sparked broad concerns about a global economic slowdown.
"Today is all about oil," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
"Better oil markets Thursday and Friday led to better equity markets. A $2 retracement in oil today, it's not surprising to see a retracement in the equity indices."
The Dow Jones industrial average .DJI fell 208.29 points, or 1.29 per cent, to 15,885.22, the S&P 500 .SPX lost 29.82 points, or 1.56 per cent, to 1,877.08 and the Nasdaq Composite .IXIC dropped 72.69 points, or 1.58 per cent, to 4,518.49.
Investors will look for insight about the economy's direction later this week as many heavyweight companies report results. Federal Reserve policymakers meet on Tuesday and Wednesday for the first time since raising interest rates in December.
"The macroeconomic reality is catching up to equity valuations, and you're seeing folks say, 'I'm going to take my winnings and get out of the way for a while,'" said Jeff Buetow, chief investment officer at Innealta Capital in Austin, Texas.
D.R. Horton shares fell 4.7 per cent to $26.40 as the No. 1 US homebuilder reported lower-than-expected revenue as its home sales fell in all regions but the Southeast.
Tyco International jumped 11.6 per cent to $34.15 after Johnson Controls said it would merge with the Ireland-based fire protection and security systems maker. Johnson Controls dropped 3.9 per cent to $34.21.
Shares of Dynegy and NRG Energy slumped 11.5 per cent and 9.6 per cent, respectively, after the US Supreme Court upheld a major Obama administration electricity markets regulation.
Caterpillar dropped 5 per cent to $57.91 after Goldman Sachs cut its rating on the stock to "sell".
Twitter fell 4.6 per cent to $17.02 after Chief Executive Jack Dorsey said four senior executives would leave the social media company.
About 7.9 billion shares changed hands on US exchanges, slightly below the 8.1 billion daily average for the past 20 trading days, according to Thomson Reuters data.
Declining issues outnumbered advancing ones on the NYSE by 2,642 to 466, for a 5.67-to-1 ratio on the downside; on the Nasdaq, 2,132 issues fell and 716 advanced for a 2.98-to-1 ratio favouring decliners.
The S&P 500 posted 3 new 52-week highs and 22 new lows; the Nasdaq recorded 12 new highs and 103 new lows.