The Department of Labor reported wholesale inflation to rose above expectations at 1.2 percent. Housing starts also pressured markets, falling 11 percent in July, the U.S. Census Bureau reported.

By close Tuesday, the Dow Jones industrial average fell 1308.84 points or 1.14 percent, to 11,348.55. The Nasdaq was down 32.62 points, or 1.35 percent, at 2,384.36 points. The Standard & Poor's 500 was down 11.91 at 1,266.69, off 0.93 percent.

On the New York Stock Exchange, 854 stocks advanced and 2,272 declined on a volume of 1.012 billion shares traded.

The 10-year U.S. Treasury note fell 6/32 to yield 3.839 percent.

Against the euro the dollar was at $1.4784 from Monday's $1.4701. The dollar against the yen was at 109.69, compared with Monday's 110.01.

In Tokyo, the Nikkei average fell 300.40 points to 12,865.05, down 2.28 percent.

The FTSE 100 index in London was also down, off 2.38 percent on a loss of 129.80 points to 5,320.40.