The latest bout of selling followed a report showing hiring by USA companies slowed more than expected last month, particularly in mining and manufacturing.
The S&P 500 fell 24 points, or 0.9%, to 2,914.
Shares of online brokerage E*Trade Financial tumbled 16.4%, the most on the S&P 500, after rival Charles Schwab Corp said it would remove commissions for online trading of stocks, ETFs and options listed on U.S. or Canadian exchanges.
Germany's 10-year yield sank five basis points to -0.60 per cent.
SECTORS: Technology stocks notched gains, led by software maker Microsoft and chipmaker Nvidia.
Manufacturers have been hurt by slowing global growth, the US trade war with China and an ongoing strike by almost 50,000 General Motors workers.
Elsewhere, the 10-year US Treasury yield tumbled, falling below 1.59%.
Bank stocks suffered losses as bond yields slumped.
Citigroup fell 2.7% and Bank of America fell 2%. In September, as investors grew more optimistic about the economy and USA stock market, they started selling out of some of the market's biggest winners-so-called momentum stocks-and started scooping up shares of companies that appeared undervalued in the stock market.
The Dow Jones Industrial Average lost 237 points, or 0.9%, to 26,327.
KEEPING SCORE: The S&P 500 index rose 0.2% as of 12:27 p.m.
For example, over the past month, shares of financials and energy companies in the S&P 500 have outperformed the broader gauge, jumping 4% and 4.7%, respectively.
"This normally volatile month could be passing some big moves to October this year", he said. Both indexes had their biggest one-day dip since August 23, when US President Donald Trump demanded that American companies seek alternatives to doing business with China.
The focus is now on the US Department of Labor's more comprehensive jobs report on Friday for further clues on the health of the economy.
The Federal Reserve, which cut interest rates for the second time this year in September, has indicated it would rely on economic data to determine future rate cuts.
Other signs show that the USA economy is weakening.
As the final quarter of 2019 kicks off, investors will be focusing on a range of factors, beginning with the high-stakes Sino-US trade talks in early October, corporate earnings and the Fed's next policy meeting.
BUILDING PROFIT: Lennar rose 3.8% after the homebuilder soared beyond Wall Street's third quarter profit forecasts on a healthy increase in home deliveries and revenue.