"The stock market's selling off because the bond market is rallying like insane", said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.
European shares also fell on Tuesday, as negative news from around the globe, compelled investors to take refuge in safe harbors like bonds and gold.
The costly trade war between the US and China has rattled markets this month. An escalation in tensions this month between the world's largest economies has stoked worries that the fallout from the costly trade conflict will undercut an already slowing global economy.
The S&P 500 Index spiked higher after trade officials named a broad swath of consumer goods that would be spared from tariffs at the current September 1 deadline. The Dow fell 1.5 percent, or 389.73 points, to 25,897.71. The average was briefly down 462 points.
The yen was steady at 105.38 per dollar after rising for fourth day.The offshore yuan was stable at 7.0926 per dollar.Bloomberg Dollar Spot Index was flat.The euro was trading at $1.1205, down 0.1%.
United States stock futures were 0.13 per cent higher in Asia, but that did little to ease the mood.More news: Aaron Mooy signs for Brighton on year-long loan from Huddersfield
Japanese futures were more than 2% higher after the S&P 500 saw its biggest intraday gain in more than two months. The S&P 500 is up almost 15% for the year, though it's down 4.8% from its all-time high set at the end of July.
Anxiety and fear over the U.S.
The S&P 500 index zoomed up and down last week, ending with its second straight weekly loss. The new tariff would go into effect September 1 and more directly affect US consumers.
The turmoil comes as investors brace for the US-China trade war to deal more damage to the global economy. "Multinationals are being very cautious". Investors' concerns included the U.S.
Traders continued to shift money into bonds Monday, sending bond prices sharply higher. Those higher prices pulled down the yield on the 10-year Treasury bond to 1.65% from 1.73% late Friday.
Jonathan Hill, an interest-rate strategist at BMO Capital Markets, also feared the 30-year yield's decline was underlining intensifying growth concerns as trade tensions continue unabated and show scant signs of tapering off. China's 10-year bond yield touched three per cent for the first time since 2016. Bank of America fell 2.5% and Citigroup gave up 2.9%.More news: Mike Perry Suffers one of the Worst Broken Noses in UFC History
Technology, health care and consumer discretionary stocks accounted for much of the market's decline.
Defensive plays such as real estate and telecom were among the few sectors in the black. -China trade war drags on. The company's revenue edged higher on growth from its US operations. Viacom shares fell 3.6%. Viacom slid 4.9% and CBS lost 1.8%.
Monday's sell-off in risk assets provided another reminder of the fragile mood across markets as it extended the tumultuous start to August. Chinese authorities have warned that the unrest could send Hong Kong into a recession and said that the city is at a "critical juncture". The nation is in a deep economic crisis and the potential for a drastic change in leadership is rattling investors there.
Wednesday brings data on China retail sales, industrial production and the jobless rate.
The U.S. consumer price index, out Tuesday, probably picked up to a 1.7% annual pace in July, according to economist estimates.
Here are some key events coming up: Companies releasing results include Barrick Gold, Chinas Tencent, JD.com and Alibaba, Cisco, Brazilian utility Eletrobras, Prudential, Australias Telstra, giant retailer Walmart, Nvidia, Swisscom and the Danish brewer Carlsberg.More news: Joshua Ruiz II latest sport event to head to Saudi Arabia