Equities on both sides of the Atlantic slid as investors eyed developments in Ukraine and Iraq and their impact on the global economy.
The price of oil dropped after the International Energy Agency cut its 2014 global oil demand growth forecast to 1.0 million barrels per day on lowerthanexpected deliveries in the second quarter and the International Monetary Fund's weaker outlook for economic growth.
"Despite armed conflict in Libya, Iraq and Ukraine, the oil market today looks better supplied than expected, with an oil glut even reported in the Atlantic Basin," the IEA said in its Oil Market Report for August, Bloomberg News reported.
In late afternoon trading in New York, the Dow Jones Industrial Average shed 0.15 percent, the Standard & Poor's 500 Index fell 0.39 percent, while the Nasdaq Composite Index dropped 0.64 percent.
Declines in shares of Chevron and Cisco Systems, down 0.9 percent and 0.8 percent respectively, led the Dow lower.
"We already know the Middle East is unstable and that Russia is sending an aid convoy to Ukraine, so this is all the continuation of a longer-term issue that has been boiling for a long time," Malcolm Polley, president and chief investment officer of Stewart Capital Advisors in Indiana, Pennsylvania, told Reuters.
Shares of Kate Spade tanked, last down 25.7 percent to US$28.90 after rising as high as US$42.87 earlier in the day, as concern about shrinking margins overshadowed better-than-expected revenue.
On a post-earnings conference call on Tuesday, the company said it expects 2014 gross margins to decline 125 to 175 basis points from a year earlier, Reuters reported.
An auction of US three-year notes drew solid demand for safe-haven assets, reflecting concern about the impact of conflict in the Ukraine, Iraq, and Gaza.
"You'll see a lot of demand stemming from geopolitical events," Aaron Kohli, an interest-rate strategist at BNP Paribas in New York, a primary dealer, told Bloomberg News. "Investors are worried about the instability."
In Europe, the Stoxx 600 ended the day with a 0.2 percent decline from the previous close. The UK's FTSE 100 inched 0.01 percent lower, France's CAC 40 dropped 0.9 percent, while Germany's DAX sank 1.2 percent.
In Germany, a report showed investor confidence weakened for the eighth month in a row. The ZEW index of investor and analyst expectations plunged more than expected, sliding to 8.6 in August, from 27.1 in July. The euro weakened against the US dollar and the Japanese yen as a result.
"The drop in the ZEW index confirms the near-term downside risk for the German and euro-zone economies emanating from the Ukraine crisis," Christian Schulz, senior European economist at Berenberg Bank in London, told Bloomberg News. "The 'Putin factor' could lead to more cautious investment plans for a while."