US stocks stayed in positive territory for much of the day until collapsing in the closing hour, making Tuesday the sixth straight day of losses.
The Dow Jones was up 440 points at one point during the day, but lost almost 600 points in the final hours, finishing over 200 points in the red, down 1.29 percent.
The S&P 500, which entered a correction on Monday, erased early gains closing 1.35 percent down.
Nasdaq fared better than other US indices, as technology companies like Apple, Facebook and Netflix finished higher. However, the tech index also saw its gains evaporate later on, finishing down 0.44 percent.
Traders work on the floor after the closing bell at the New York Stock Exchange August 25, 2015.
The overall drop in US stocks deflated hopes of a relief rally earlier on Tuesday, as European markets surged on news of an interest rate cut by China’s central bank, renewing volatility on the global financial markets.
The People’s Bank of China lowered its interest rates for the fifth time since November in an attempt to stabilize the country’s faltering stock market. The key Shanghai Composite Index has dropped 22 percent in its worst four-day rout in nearly 20 years.