Wall Street's main indexes have closed lower in the first session after the US Labor Day holiday as traders assessed fresh economic data in volatile trading.
A survey from the Institute for Supply Management (ISM) showed the US services industry picked up in August for the second straight month amid stronger order growth and employment while supply bottlenecks and price pressures eased.
However, numbers from S&P Global showed the services sector Purchasing Managers' Index fell short of flash estimates for August.
A stronger than expected reading on the US services sector fuelled expectations that the Federal Reserve will keep raising interest rates to tame inflation.
"The Fed has relegated us to being very data dependent, so every piece of information that comes out investors are going to look not only at the absolute level but try to infer what that means for when the Fed meets," said Carol Schleif, deputy chief investment officer at BMO Family Office.
"One of the things that is disconcerting to investors is that there's really little to propel markets either up solidly or down solidly," she added.
Concerns over the supply of energy to Europe and how COVID-19 lockdowns will impact China's economy also drove markets down on Tuesday, said Shawn Cruz, head trading strategist at TD Ameritrade.
"A lot of uncertainty and volatility is not coming from the US; it's actually coming from overseas."
The tech-heavy Nasdaq suffered its seventh consecutive day of losses, its longest losing streak since November 2016.
Rate-sensitive shares of Amazon.com Inc and Microsoft Corp fell about 1.0 per cent as benchmark US Treasury yields rose to their highest levels since June.
Apple Inc, which will launch new iPhones next Wednesday, also lost ground.
Traders see a 74 per cent chance of a third consecutive 75-basis-point rate hike at the Fed's policy meeting later this month, according to CME's FedWatch Tool
The focus will be on Fed Chair Jerome Powell's speech on Thursday as well as US consumer price data next week for clues on the path of monetary policy.
Markets started September on a weak note, extending a slide that started at the end of August, as hawkish comments from Fed policymakers and data signalling US economic momentum raised fears of aggressive interest rate hikes.
The S&P is down nearly 18 per cent so far this year while the Nasdaq has shed more than 26 per cent as rising interest rates hurt megacap technology and growth stocks.
Among the major S&P sectors, energy and communication services were among the worst performers while defensive utilities and real estate rose.
The S&P 500 lost 15.57 points, or 0.36 per cent, to end at 3,910.16 points, while the Nasdaq Composite lost 84.94 points, or 0.73 per cent, to 11,545.92 and the Dow Jones Industrial Average fell 148.35 points, or 0.47 per cent, to 31,155.72.
The CBOE Volatility index, known as Wall Street's fear gauge, touched a near two-month high of 27.80.
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