The Chinese PMI data added to ongoing jitters about the world's second-largest economy, which led to the worst month for more than three years in August for the S&P 500.
In U.S. economic news, the August ISM manufacturing index fell to 51.1 from 52.7 the prior month for its weakest read in over two years, according to Reuters.
Read MoreRocky month, US data in focus
"US manufacturing is obviously being impacted by what is going on overseas combined with the stronger dollar and weakness in the oil patch," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.
"While the US economy is very internally dependent in terms of growth, it is certainly not immune to softness outside (there will not be decoupling) and we know has been growing only modestly for years anyway because of very low productivity growth and only moderate wage growth," Boockvar said.
Construction spending increased 0.7 percent in July.
Three major U.S. automakers beat their sales estimates for August. The gains contributed to a total seasonally adjusted annual rate of 17.81 million, the highest rate since July 2005, according to Autodata.
Reporting before the bell, Dollar Tree earned an adjusted 67 cents per share for its latest quarter, beating estimates by 5 cents. However, revenue and a same store sales increase of 2.7 percent were both below analyst estimates. The stock closed down about 8.7 percent.
In Europe, equities accelerated selling after the weak Chinese data, with all major bourses in the region down about 2 percent.
Asian stocks also slumped on the first trading day of September, with Japan's Nikkei 225 index posting a near 4 percent loss into correction territory, after surveys of China's mammoth manufacturing sector showed a further loss of momentum in the world's second-biggest economy.
Read MoreTokyo shares lead declines as China PMIs sour mood
"China hit the global markets and we followed suit," said Peter Cardillo, chief market economist at Rockwell Global Capital. Markets will "continue this way until we get the FOMC out of the way. ... I still think we have bottomed even with a decline like today."
The major averages are still several percentage points above the lows hit last week.
The Dow Jones industrial average closed down 469.68 points, or 2.84 percent, at 16,058.35, with Apple leading all blue chips lower.
The S&P 500 closed down 140.40 points, or 2.94 percent, at 4,636.10, with energy plunging 3.66 percent to lead all 10 sectors lower.
The Nasdaq closed down 58.33 points, or 2.96 percent, at 1,913.85.
All the U.S. major averages are in correction, more than 10 percent off their 52-week intraday high.
About five stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of nearly 1.6 million and a composite volume of 4.3 billion in the close.
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The dollar traded mildly lower against major world currencies, with the euro near the highs of the day above $1.13, and the yen slightly stronger near 119 yen against the greenback.
Treasury yields held lower, with the 10-year at 2.16 percent and the 2-year at 0.71 percent.
Gold futures for December delivery settled up $7.40 at $1,139.80 an ounce.
—CNBC's Gina Francolla and Giovanny Moreano contributed to this report.
On tap this week:
Earnings: H&R Block, Qihu 360 Tech, Bob Evans
Earnings: Vera Bradley, Five Below
8:15 a.m.: ADP Employment report
8:30 a.m.: Productivity & Costs
8:30 a.m.: Gallup U.S. job creation index
10 a.m.: Factory orders
2 p.m.: Beige Book
Earnings: Medtronic, Campbell Soup, Ciena, Joy Global, Lands' End, Cooper Cos.
7:30 a.m.: Challenger Job-Cut report
8:30 a.m.: International trade, jobless claims
10 a.m.: ISM non-manufacturing index
10:30 a.m.: Natural gas inventories
11 a.m.: Oil inventories
9 p.m.: Minneapolis Fed President Kocherlakota speaks at forum in Missoula, Montana.
8:10 a.m.: Richmond Fed President Lacker speaks on the case against further delay
8:30 a.m.: Nonfarm payrolls
3 p.m.: Treasury Strips
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