Dow closes down triple digits, below 17K; oil at 7-yr lows

U.S. stocks closed lower Wednesday, pressured by continued concerns about global economic growth, low oil prices and increased geopolitical tensions. ( Tweet This )

The major averages closed down more than 1 percent but off session lows.

"It's pretty much the same story. You've got China growth problems. U.S. manufacturing sector seems to be in recession territory. Pile on that (reports of) North Korea testing nukes. ... It's got a lot of people nervous," said John Caruso, senior market strategist at RJO Futures.

Brent hit an 11-year low, while U.S. crude broke $34 a barrel to close at its lowest in seven years, amid continued concerns about oversupply.

The Dow Jones industrial average closed about 250 points lower after falling 341 points in afternoon trade. The Dow and S&P 500 closed below their psychologically key levels of 17,000 and 2,000, respectively, for the first time since mid-October.

"We took out $34 (in WTI) and it's been down from there. 1,990 (on the S&P 500) was a key technical level and we blew through there," said Peter Coleman, head trader at Convergex. "You've had the constant overhang (of oil) over the course of the day. When oil took it's last leg down that's when we started (falling)."

"Until we get some stabilization in oil we're going to have some problems in the market," he said.

Energy closed down 3.6 percent to lead all S&P 500 sectors lower. Chevron closed down nearly 4 percent as one of the greatest weights on the Dow. Among the index constituents, only Wal-Mart ended higher, up 1 percent.

The S&P 500 ended about 1.3 percent lower around 1,990 after earlier falling to 1,979.

"The positive is we're still near the 2,000 level and if we can hold that level all is not lost," said JJ Kinahan, chief strategist at TD Ameritrade. He is watching 1,965 on the S&P 500.

The Dow transports closed nearly 2 percent lower and hit a fresh 52-week intraday low. Apple closed down nearly 2 percent, at $100.70 a share, after briefly dipping below $100 for the first time since Aug. 24.

Read MoreWhy has Wall Street fallen out of love with Apple?

"The biggest thing affecting markets today and this year, we're coming in with an assumption the global economy is slowing more in '16 than '15. We're worried about China," said Art Hogan, chief market strategist at Wunderlich Securities.

The World Bank cut its 2016 global growth forecast to 2.9 percent, citing pressure from "weak growth among major emerging markets."

Adding to those economic concerns Wednesday was North Korea's claim to have successfully tested a hydrogen bomb.

"It's a combination of that event ... and an assumption that valuations are out of line with global economic growth," Hogan said.

The last three times North Korea conducted a nuclear test, the S&P 500 had muted to higher returns when buying one day prior to the event and selling one day after, according to Kensho, a quantitative analytics tool used by hedge funds.

In choppy trade, the Dow attempted recovery several times from a 268-point drop in the open.

"I think investors believe fears in China are maybe overblown," Jack Ablin, chief investment officer at BMO Private Bank, said of the mid-morning recovery in stocks from session lows.

"I also find it's interesting the market seems somewhat less sensitive to changes in oil prices these days," he said.

Oil struggled to stabilize before ending sharply lower after data showed refineries continued to oversupply the market. However, U. S. crude oil inventories fell by nearly 5.1 million barrels for the week.

U.S. crude oil futures settled down $2.00, or 5.56 percent, at $33.97 a barrel, its lowest since December 2008. Brent settled at $34.23, its lowest since June 2004.

Read MoreFill 'er up! Gasoline prices set to tank

European stocks ended lower by about 1 percent or more. Asian stocks also ended mostly lower, with only the Shanghai composite closing up more than 2 percent after a sharp drop earlier in the week.

Overnight, the Chinese yuan plunged to a five-year low in offshore trading, sharply widening the gap with the mainland-traded yuan.

The headline Caixin China General Services PMI for December was 50.2, down 1 point from November and the lowest in 17 months, according to Markit. The report comes after another sub-50 print on manufacturing PMI for both China and the United States in the last few days.

"You're going to have periods where services are weak and manufacturing are weak and that is going to create confusion in the market because investors thought in the summer they were going to create a theme for China (that growth in services was going to offset the manufacturing slump)," said Leland Miller, founder and president of China Beige Book International. The private survey of business conditions in China released in mid-December reported "pervasive weakness" in the fourth quarter.

A few days earlier, the official China services PMI report showed a slight rise to 54.4 in December.

"Overall we're still pretty confident China won't have a hard landing this year. Services, retail sales still in very solid expansionary territory. We don't think the PBOC is doing this on a currency side to do a competitive devaluation to boost exporters," said Lucy Qiu, emerging markets strategist at UBS Wealth Management.

Still, "it would help if China agreed to control its currency devaluation much more firmly," said John Vail, chief global strategist at Nikko Asset Management.

Read MoreRichard Fisher: Don't blame China for the sell-off

With Wednesday's decline, the major U.S. averages are on pace for weekly losses of more than 2.5 percent. The Dow and Nasdaq composite posted their worst first three days of a year since 2008.

"It's the first week of the year. Many times you ease into the year. People are just trying to get their bearings where you want to be long-term and short-term," TD Ameritrade's Kinahan said, noting focus on possible outcomes of the presidential election later this year and the potential path of Fed tightening.

Stocks held near earlier lows following the afternoon release of the Federal Reserve December meeting minutes. The document that indicated that for some members, the decision to raise rates for the first time in nearly a decade was a "close call."

"On the upside they're still very cautious and I like the fact that not everyone was (in) lockstep," said Tom Siomades, senior managing director and head of Hartford Funds Investment Consulting Group.

We're moving focus from "when" the Fed will move to "how the Fed is going to move, but there's still no clarity," he said.

Read MoreThe market's not buying the Fed's 'leap of faith'

The U.S. dollar traded slightly lower against major world currencies after trading flat for much of the earlier session.

The euro was near $1.078 and the yen at 118.50 yen against the greenback, around mid-October lows.

Treasury yields held lower, with the 2-year yield around 0.98 percent, below 1 percent for the first time since Christmas Eve. The 10-year yield was near 2.17 percent, its lowest since mid-December.

"It's counter-intuitive. If you look at what the ADP report did, you'd expect the yields to rise by the strength in the ADP report. But that's certainly overhung by the decline in oil and international tensions," said Bryce Doty, senior fixed income manager with Sit Investment Associates.

"The net result is the Fed is still on track despite the drop in yields today," he said.

Federal Reserve Vice Chairman Stanley Fischer said Wednesday morning in an interview on CNBC that markets' expectations of future rate hikes are "too low."

The Fed's estimates of four hikes this year are "numbers in the ballpark," he said.

Fischer also said North Korea's claim to have successfully tested a hydrogen bomb has increased uncertainty in the markets. He added, however, that he's unsure of the long-term impact and that concerns about a slowdown in China's economy are perhaps more significant.

Read MoreEarnings will tell if it's correction time for stocks

In other economic news, the U.S. Markit Services PMI for December was 54.3, below November's final print of 56.1.

ISM non-manufacturing came in at 55.3, down from November's 55.9.

The Commerce Department said on Wednesday new orders for manufactured goods slipped 0.2 percent after a downwardly revised 1.3 percent gain in October, Reuters said.

Earlier, the December ADP report showed creation of 257,000 payrolls.

The U.S. November trade deficit came in at $42.4 billion. Imports of goods fell to their lowest in nearly five years, outpacing a drop in exports, Reuters said.

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U.S. stocks closed mixed Tuesday, stabilizing after Monday's plunge of more than 1.5 percent that marked the worst opening to a year since 2008 for the Dow.

Read More Early movers: YHOO, LMT, UAL, TMUS, AAPL, VRX, PCP, VZ, YUM & more

On Wednesday, the Dow Jones industrial average closed down 252.15 points, or 1.47 percent, at 16,906.51, with Chevron leading decliners and Wal-Mart the only advancer.

The S&P 500 closed down 26.45 points, or 1.31 percent, at 1,990.26, with energy leading all 10 sectors lower.

The Nasdaq composite closed down 55.67 points, or 1.14 percent, at 4,835.76.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held near 20.5.

About three stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of nearly 1.1 billion and a composite volume of nearly 4.3 billion.

Gold futures for February delivery settled up $13.50 to $1,091.90 an ounce.

Reuters contributed to this report

Disclosure: CNBC's parent NBCUniversal is a minority investor in Kensho.

On tap this week:

Wednesday

Earnings: Monsanto, RPM International

Thursday

Earnings: Walgreens Boots Alliance, Constellation Brands, Finish Line, KB Home, Bed Bath & Beyond, PriceSmart, Ruby Tuesday, Synnex, The Container Store, WD-40

7:30 a.m.: Challenger job-cut report

8:45 a.m.: Richmond Fed President Jeffrey Lacker speaks on the economic outlook for January 2016 at the Greater Raleigh Chamber of Commerce in Raleigh, North Carolina.

8:30 a.m.: Jobless claims

10:30 a.m.: Natural gas inventories

2:15 p.m.: Chicago Fed President Charles Evans speaks on economic conditions and monetary policy at the Wisconsin Economic Forecast Luncheon in Madison, Wisconsin.

4:30 p.m.: Fed balance sheet/money supply

Friday

Earnings: Acuity Brands

8:30 a.m.: Non-farm payroll, unemployment rate and average hourly wages

10 a.m.: Wholesale trade

11:30 a.m.: San Francisco Fed President John Williams speaks

1 p.m.: Rig count

1 p.m.: Richmond Fed President Jeffrey Lacker speaks

3 p.m.: Consumer credit and Treasury STRIPS

*Planner subject to change.

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