US stocks slumped with government bond yields ahead of a key monetary policy meeting this week at the Federal Reserve and as concern mounted over the contagion effect of a potential collapse of China's Evergrande (3333.HK), reportedly the most indebted real estate company in the world.
The Dow Jones Industrial Average sank by 2.1% to 33,859.63, with S&P 500 down by 2.1% and Nasdaq lower by 2.6%. All sectors were in the red after midday on Monday.
The Chicago Board of Exchange's volatility gauge, VIX, soared by 28% to 26.66, its highest level since mid-May.
The US 10-year Treasury yield dropped by 5.9 basis points to 1.31% intraday, pushing the dollar down by 0.5% against the Japanese yen to 109.44.
The Federal Reserve will hold its monthly meeting on Tuesday and Wednesday. The market is awaiting word on when the central bank will begin tapering its monthly program of $120 billion of asset purchases, which would signal a turn in the Fed's accommodative monetary policy stance.
The Hang Seng in Hong Kong sold off 3.3% on Monday and Australia's S&P/ASX 200 was down 2.1%. With $300 billion in debt, Evergrande is facing bond payments due this week, and though it is expected to ultimately fold, the question is how China will deal with the losses with its creditors, according to Bank of Montreal. Markets in China, Japan and South Korea were closed Monday for national holidays.
"The source of the angst is ongoing worries about the broader implications of worsening developments at the beleaguered China Evergrande Group -- its stock has plunged a further 10% on Monday -- and reports that more companies in the property sector might be prospective targets for Beijing's regulators," a research note from Daiwa Capital Markets said.
West Texas Intermediate crude oil dived by 1.9% to $70.62 a barrel while gold was up by $11.4 per troy ounce to $1,762.30.