Wall Street finishes solidly lower, Dow Jones -1.8%

Major US stock indices finished with heavy losses on Monday, as fears of a debt crisis in China and a credit default in the United States sparked a selloff.

The benchmark Dow Jones Industrial Average was 1.8 per cent lower at the close at 33,970.47.

The broad-based S&P 500 lost 1.7 per cent to finish at 4,357.73. The tech-rich Nasdaq Composite Index lost 2.2 per cent to 14,713.90.

The day had started ugly, with Wall Street indices opening deep in the red as traders fretted over the fate of Evergrande, one of China's biggest developers that is awash in debt of more than $300 billion and teetering on collapse.

Their plunge continued throughout the day, with all indices losing at least two per cent, though the S&P 500 and Dow managed to reign in some of their losses.

September is known for rocky trading, but the situation was made worse by the ongoing impasse in Congress over raising the US debt limit.

The Republican opposition refuses to increase the cap despite warnings from the White House of an economic catastrophe in the event of an unheard-of US debt default.

"We are really playing with fire, at the risk of the government having to shut down. It's not catastrophic, but it doesn't really give confidence in the short term," said Gregori Volokhine of Meeschaert Capital Markets.

The two-day Federal Reserve meeting beginning Tuesday is another source of uncertainty, as the central bank could announce changes to its stimulus policies.

Traders also remain concerned about the economic impacts of Covid-19, which continues to spread across the country at high rates.

"There's a buildup of negative trends, especially since with the Fed meeting, there's going to be talk of less liquidity, which isn't ideal for the markets," Volokhine said, adding that some of the losses were due to traders selling off shares that had soared in recent sessions.

Washington announced Monday it will lift pandemic travel bans on all air passengers if they are fully vaccinated and undergo testing and contact tracing, sending US airlines higher.

United Airlines gained 1.6 per cent, Delta Air Lines rose 1.7 per cent and American Airlines won three per cent.