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The Dow Jones industrial average was down 2.50%, Standard & Poor’s 500 Index was down 2.58% and the Nasdaq Composite Index was down 2.42%.
The early losses on Wall Street followed steep losses on European markets on Monday, which were triggered by fears that Europe's efforts to resolve its debt crisis were faltering.
"US stocks are under solid pressure in early trading on the heels of a sharp sell-off in Europe yesterday amid the festering eurozone sovereign debt crisis uneasiness," analysts at Charles Schwab said in a research note.
"Also, concerns about the health of the US economy are weighing on sentiment following Friday's disappointing labour report."
No new jobs were created in the United States in August, according to that report, which stoked fears that the US economy might be slipping into a double-dip recession.
Banking stocks were hit especially hard on Tuesday morning, with Citigroup plunging 5.5 percent, Bank of America falling 5.4 percent and JPMorgan Chase slumping 4.3 percent.
Financials have been pummeled by fear of contagion from Europe's debt crisis as well as Friday's announcement after the markets closed that US authorities were hitting major banks with multibillion-dollar lawsuits over losses on mortgage-backed securities.
Dell was down 1.9 percent, in line with losses on the broader market, after news that the personal-computer maker was partnering with Chinese Internet giant Baidu to sell tablet computers and smartphones in China.
Bond prices, which were already close to record highs, climbed even higher as investors flocked to the traditional safe haven of US Treasurys.
The yield on the 10-year Treasury note fell to 1.94 percent from 2.00 percent late Friday, while that on the 30-year bond dropped to 3.21 percent from 3.31 percent.
Bond prices and yields move in opposite directions.
