 "Wall Street shaken by China turmoil, oil slide")
China allowed the biggest fall in the yuan in five months, and Shanghai stocks were halted for the second time this week after another brutal selloff.
With Beijing accelerating the yuan's depreciation to make its exports more competitive, investors fear China's economy is even weaker than had been imagined.
Adding to the gloom, oil slid below $33 a barrel to near 12-year lows due to worries over weaker demand from China and an over-supplied market.
Billionaire investor George Soros, speaking at an economic forum in Sri Lanka, drew similarities between the present environment and the financial crash of 2008.
He said global markets are facing a crisis and investors need to be very cautious, Bloomberg reported.
The World Bank also cut its global economic growth forecast for 2016, saying the weak performance of major emerging market economies will tamp activity overall, as will anemic showings from developed countries such as the United States.
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At 9:38 a.m. ET (1438 GMT), the Dow Jones industrial average was down 250.25 points, or 1.48 percent, at 16,656.26, the S&P 500 was down 28.88 points, or 1.45 percent, at 1,961.38 and the Nasdaq Composite index was down 84.10 points, or 1.74 percent, at 4,751.66.
All 10 major S&P 500 sectors were lower with the technology index's 2.3 percent fall leading the decliners.
The CBOE Volatility Index, the market's favored gauge of Wall Street anxiety, was up 13 percent at 23.20, its highest open since December 14.
"The moves we have seen in the past few days feel very similar to the ones we saw in August," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
The August free-fall, which saw the Dow lose 1,000 points at one point in intraday trading, was triggered by the same factors - weakening of the yuan and a sharp slide in oil prices. [nL4N10Z4QN]
"While investors are concerned about the slowdown in the Chinese economy, the question now is whether the authorities have the ability to prop up the market," Brown said.
Data showed the number of Americans filing for unemployment benefits fell last week from a more than five-month high. The report comes ahead of the government's closely watched monthly employment report due for release on Friday.
Shares of Apple were down 2.8 percent at $97.87, following reports of slowing shipments of the iPhone 6S and 6S Plus.
Oil majors Exxon and Chevron were down about 2 percent, while miner Freeport-McMoRan fell 3.7 percent to $5.93.
Yahoo fell 5.5 percent to $30.51 after Business Insider reported the company was working on a plan to cut its workforce by at least 10 percent. Alibaba, in which Yahoo has a stake, was down 6.3 percent at $72.66.
Declining issues outnumbered advancing ones on the NYSE by 2,617 to 206. On the Nasdaq, 2,194 issues fell and 279 advanced.
The S&P 500 index showed one new 52-week high and 67 new lows, while the Nasdaq recorded 10 new highs and 145 new lows.