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NEW YORK (CNNMoney)
The Dow Jones industrial average tumbled more than 200 points, or 1.7%, while the S&P 500 and Nasdaq sank more than 1.8%.
Fears about China pushed the CBOE Market Volatility Index (VIX) up above 21 to the highest level of the year. The CNNMoney Fear & Greed Index dropped further into Extreme Fear, clocking in at the lowest level since June 2012.
European markets were also deep in the red.
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Credit crunch in China? The People's Bank of China told the country's largest banks Monday to rein in risky loans and improve their balance sheets, a warning that sent a jolt through already unsettled equity markets.
The Shanghai Composite index was hardest hit by the announcement, registering a decline of 5.3%. The Hang Seng in Hong Kong lost nearly 3%. Japan's Nikkei index declined by 1.3%.
The sell-off comes after short-term borrowing costs skyrocketed last week in China, leading to a credit crunch. The rate at which Chinese banks lend to each other overnight hit, which serves as a measure of liquidity in the financial market, hit a record high above 13% last week before moderating. Another key measure of cash in the banking system -- the 7-day "repo rate" -- peaked at 25%.
Investors are worried that less liquidity in the world's second-largest economy could further slow the shaky global recovery.
Commodities get dinged: Commodities were under pressure amid worries about a slowdown in global economic growth. Copper prices sank nearly 3%, while gold and silver continued to decline.
Oil prices were also falling. Both crude oil and Brent crude prices dropped to a three-week lows.
Related: Brazilian stocks among world's worst performers
Fed worries persist, bond yields shoot higher: Last week's comments from Federal Reserve chairman Ben Bernanke sparked a rush out of bonds. Fresh concerns about China intensified that sell-off Monday.
As investors dumped bonds, yields continued to rise, with the yield on the 10-year Treasury note hitting 2.65% early Monday. That's its highest since August 2011.
Bernanke said at a news conference last week that the central bank could slow the pace of its bond-buying program later this year if the economy continues to improve.
The Fed's stimulus program has been a major driver of the bull market, and worries over its longevity are likely to generate market volatility in the months ahead.
All three major U.S. stock market indexes ended roughly 2% lower last week, as investors were spooked by Bernanke's comments.
Despite the recent selling, stocks are still way up for the year. The Dow, S&P 500 and Nasdaq have gained between 9% and 11% since the start of January.
Stocks on the move: Shares of Vanguard Health Systems (VHS, Fortune 500) surged almost 70% after inking a $1.8 billion acquisition deal with Tenet Healthcare Corp. (THC, Fortune 500)
First Published: June 24, 2013: 9:41 AM ET
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