Monday's selling came as investors positioned themselves ahead of the Federal Reserve's two-day meeting, which begins on Tuesday. Australia's S&P ASX 200 gave up 0.2 percent to 5,580.60. The bank said the USA economy could slow even more than markets expect and prompt a bigger sell-off to start the year.
United States stocks held near a 14-month low on a volatile day that saw the benchmark gauge swing nearly 2 percent from trough to peak. The Russell 2000, which tracks smaller companies' performance, entered a bear market, down 20 percent from its 52-week high, and the Cboe Volatility Index hit its highest level in a week. The Dow was down 591 points, most recently, or 2.5%, at 23,508, heading for its lowest close of 2018, the S&P 500 index declined by 2.5% at 2,536, while the Nasdaq Composite Index was trading 184 points, or 2.7%, lower at 6,727.
"The economy is growing without inflation", said Navarro, calling on the Fed not to raise interest rates. China and Europe have also suggested that growth is slowing.
"The market's overriding fear is that the Fed will press ahead with plans to raise interest rates, which could be too much for the U.S. economy to handle", Jasper Lawler of London Capital Group said in an email on Tuesday. Some of the largest losses went to utilities and real estate companies, which have done better than the rest of the market during the turbulence of the last three months.
Johnson & Johnson shares rose 1.0 percent after a almost 13 percent drop over two days on a Reuters report that the company knew for decades that its Baby Powder contained asbestos.
Boeing rose 4.4 percent to $330.12.
Volume on US exchanges was 9.18 billion shares, compared with the 8.06 billion-share average over the last 20 trading days. Still, investors remain cautious a deal will be done by the March 1 deadline even as China's openness to cutting tariffs on USA cars and buying soybeans is feeding optimism that the dispute will be resolved.
Steep drops in equity markets over the last two months have sapped investor confidence, spurring fund managers to predict global growth to weaken over the next 12 months, the worst outlook in a decade, Bank of America Merrill Lynch's December investor survey showed. Brent crude, used to price global oils, dipped 1.1 percent to $59.61 a barrel in London.
EARNINGS BOOST: Oracle jumped 3.4 percent to $47.30 after reporting stronger profit for the latest quarter than analysts expected.
CURRENCIES: The euro was up 0.3 percent at $1.14 while the dollar fell 0.2 percent to 112.38 yen.