The Dow Jones Industrial Average shed 96.55 points, or 1.1 percent, to 8,786.74, a level not seen since June 22.
Worries over ebbing earnings growth, coupled with the market's rich valuation, have been the primary catalysts behind the liquidation.
"The market's worried about too much earnings weakness," Robert S. Robbins, market strategist at Robinson-Humphrey Co. said. "It's also a little worried about the scandal in the White House. But that kind of thing historically has been a non-issue.
"A lot of foreign investors tend to sell U.S. stocks thinking that the head of state is so important," Robbins continued. "Our government is set up with the executive, legislative, and judicial branches, and the Congress is a tremendous force such that the president can't do much of anything alone. So I don't think the scandal issue is very important."
Once again, investors preferred the perceived safety of larger issues, with smaller stocks absorbing the brunt of the liquidation.
Overseas, Hong Kong's Hang Seng index fell 4.8 percent. Last week the index lost 3.9 percent following a setback of more than 4 percent the previous week. After the market closed, the Hong Kong government said its economy contracted 2.8 percent in the first quarter.
In Japan, the Nikkei 225 index gave back 1.3 percent. Investors worried over the government's ability to resurrect its banking system, overwhelmed with bad loans tied to the collapse of Japan's once high-flying real estate market.
In Monday's market highlights:
- The Standard & Poor's 500 Index fell 0.7 percent.
- New York Stock Exchange losers outdistanced winners by more than 2 to 1.
- On the Big Board floor, turnover dwindled 3 percent to 624 million shares.
- The Nasdaq Composite declined 1.1 percent. Declining issues beat advancers by more than 2.5 to 1 in the Nasdaq Stock Market. Volume totaled 649 million shares.
- On the economic front, an influential report from the nation's purchasing managers boosted a bond market that had already risen on the selling in Asian stock markets and a firmer U.S. dollar.
- In the bond market, the 30-year Treasury rose 26/32, to yield 5.661 percent.