Mainland Chinese shares fell 7 per cent, triggering a new circuit breaker that prompted a trading halt, after surveys showed factory activity in the world's second-largest economy shrank sharply in December.
Adding to investors' worries, China's central bank fixed the yuan at a four-and-a-half-year low, weakening it against the dollar.
"Those are violent New Year fireworks. That's quite a way to start the day off," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.
"Right now, the focal point is China, the global economic condition, and the fact that we're coming off a disappointing year on many levels, a frustrating year on many levels, only to walk in and have the (S&P) futures down 35 points," he said.
At 1436 GMT (8:06 p.m. in India), the Dow Jones industrial average was down 349.78 points, or 2.01 per cent, at 17,075.25, the S&P 500 was down 37.67 points, or 1.84 per cent, at 2,006.27 and the Nasdaq Composite index was down 111.77 points, or 2.23 per cent, at 4,895.64.
All 10 major S&P sectors were lower, led by the 2.4 per cent decline in the tech sector.
Apple was the biggest drag on the S&P and Nasdaq, falling 2 per cent to $103.16. The iPhone maker's stock closed 2015 down more than 4 per cent.
Goldman Sachs was down 3.2 per cent at $174.45 and was the biggest drag on the Dow.
Crude oil prices rose after a breakdown in diplomatic ties between Saudi Arabia and Iran raised concerns of supply restrictions, while gold jumped more than 1.5 per cent as investors fled to the safe-haven metal.
The S&P 500 logged a marginal loss in 2015, while the Dow posted its first annual decline since 2008, falling 2.23 per cent. Only Nasdaq finished the year in the black, gaining 5.73 per cent.
Investors will assess US economic data as they watch for the Federal Reserve's next move. The US central bank last month raised interest rates for the first time in nearly a decade.
The index of national factory activity is expected to have risen in December, according to the Institute for Supply Management. The data is due during the day.
Netflix was down 6 per cent at $107.42 after Baird cut its rating on the stock to "neutral".
Baxalta was up 3 per cent at $40.20 as a buyout from UK drug maker Shire loomed closer.
Declining issues outnumbered advancing ones on the NYSE by 2,501 to 296. On the Nasdaq, 2,130 issues fell and 351 advanced.
The S&P 500 index showed no new 52-week highs and seven new lows, while the Nasdaq recorded six new highs and 34 new lows.
© Thomson Reuters 2016