The Dow Jones industrial average closed down 146.32 points, or 1.1 percent, at 13,211.99. The broader Standard & Poor's 500 index lost 18.64 points, or 1.26 percent, at 1,455.27.

On the New York Stock Exchange, 1,403 stocks gained and 1,944 declined, on volume of 2.21 billion shares traded.

American Home Mortgage Investment Corp. (OTCPK:AHMIQ) said it might liquidate its assets after failing to meet margin calls. Its stock plummeted 90.07 percent, or $9.43, to close at $1.04 on the New York Stock Exchange after trading resumed in it following a halt that stretched to over a day and a half.

The technology-heavy Nasdaq Composite Index tumbled 37.01 points, or 1.43 percent, at 2,546.27.

In London, the FTSE 100 index advanced 154 points, or 2.48 percent, to close at 6,360.10 on upbeat earnings and deal news.

Japan's Nikkei 225 index finished the day down 40.41 points, or 0.23 percent, at 17,248.89 on reports some steelmakers were being investigated for possible price-fixing.

The 10-year U.S. Treasury note rose 14/32, yielding 4.749 percent, while the 30-year bond was up 25/32, yielding 4.907 percent.

The U.S. dollar fell to 118.47 yen from 118.95 yen in New York late Monday. The euro, in U.S. dollars, slipped to $1.3681 from $1.394.