The Dow Jones, S&P 500 and NASDAQ indexes have opened more than 2% down as Wall Street has continued the rout on global share markets on January 4.
It followed sharp falls in China, where trading on the main stock markets was halted early after indexes tumbled 7%.
A survey indicating China’s manufacturing sector contracted again last month was blamed for the falls.
Other Asian markets also fell, while in Europe, the FTSE 100 closed down 2.6% and Germany’s Dax index dropped 4.3%.
Meanwhile, news that Saudi Arabia had severed diplomatic ties with Iran sent oil and gold prices higher.
On Wall Street, all 10 major S&P sectors were lower, led by the 2.4% fall in the technology sector. Bank stocks were also hard hit, with Goldman Sachs down 3.2%.
On January 4, trading on China’s Shanghai and Shenzhen stock exchanges was halted for the first time under new “circuit breaker” rules, which are designed to curb market volatility.
The share price falls came after more signs of trouble in the world’s second-largest economy.
The Caixin/Markit purchasing managers’ index slipped to 48.2 in December, marking the 10th consecutive month of shrinking factory activity in the sector. A reading below 50 indicated contraction.
Some analysts also attributed the decline in share prices to the imminent end of a six-month lockup period on share sales by major institutional investors, a policy implemented to shore up indexes. Big shareholders may start dumping shares once the ban is lifted on January 8.
The January 4 sell-off in China had a knock-on across the region. Japan’s Nikkei 225 tumbled 3.1% and Hong Kong’s Hang Seng retreated 2.6%.
Markets were also rattled by growing tensions between Middle East powerhouses Saudi Arabia and Iran over the execution of Shia cleric Nimr al-Nimr.
The execution in Saudi Arabia led to protests in Tehran. Saudi has cut diplomatic ties with Iran and given diplomats 48 hours to leave.
The price of Brent crude jumped more than 3% at the start of the day on the back of heightened tensions, but then fell back sharply after US stock markets opened. In late afternoon trading, Brent was down 1% at $36.96 a barrel, while US crude was down 1.4% at $36.52.
Analysts said the underlying trend of oversupply would continue to weigh on prices over the longer term.
Oil prices are down by two-thirds since mid-2014, with analysts estimating that producers are pumping between 0.5 million and two million barrels of oil every day in excess of demand.
Worries about the impact of Middle East tensions were underlined in the gold price, which rose more than 1% on January 4 to $1,070.20 an ounce.
Gold is frequently seen as an alternative investment during times of geopolitical and financial uncertainties. The gold price lost 10% in 2015.
Another traditional haven is the Swiss franc, which gained about 0.8% against both the dollar and the euro in January 4 trading.
Global stock markets have been hit by renewed fears over China’s economic growth, with the main indexes falling sharply.
Wall Street traded sharply lower, with the Dow Jones down more than 300 points, or 1.9%, at 16,215.
European markets also fell, with the London’s FTSE 100 closing down 3% and France’s CAC 40 and Germany’s DAX about 2.4% lower.
Earlier, figures for August showed China’s manufacturing contracted at its fastest pace in three years.
The official manufacturing purchasing managers’ index (PMI) dropped to 49.7 from 50 in July. A figure below 50 indicates contraction.
It follows recent turmoil in the markets sparked by concerns over a slowdown in the world’s second-largest economy.
Energy companies led the way down on the Dow, with Chevron and Exxon Mobil down about 3%. This followed a fall in the oil price, which was down more than 4% at $51.89.
Before Tuesday’s fall, the price of oil had risen by about 25% in the past three trading sessions.
The S&P 500 was also down about 2% at 1,934.18, while the tech-heavy NASDAQ was 1.6% lower at 4,699.21.
Global markets sustained heavy losses in August – for both the UK’s FTSE 100 and the US’s S&P 500, it was the worst month since May 2012.
As well as the weak China factory data, investors are unsure about the US Federal Reserve’s next move. Many had penciled in the a rate rise – the first move since the financial crisis – for September. However, given the recent stock turmoil, analysts seem less certain.