US stocks have plunged to their worst loss in six and a half years, with the Dow industrials falling nearly 1600 points overnight - its biggest intraday decline in history.

The plunge in equity markets has hit Australian shares in early trade with the local key indexes opening more than 2.5 per cent lower.

Wall Street slumped more than 1100 points or 4.6 per cent, extending Friday's hefty drop amid inflation concerns potentially forcing a quicker pace of interest rate rises by the US Federal Reserve.

The benchmark S&P 500 and the Dow suffered their biggest percentage drops since August 2011 as a long-awaited pullback from record highs deepened.

The financial, healthcare and industrial sectors fell the most, but declines were spread broadly as all major 11 S&P groups dropped at least 1.7 per cent. All 30 of the blue-chip Dow industrial components finished negative.

With Monday's declines, the S&P 500 erased its gains for 2018 and is now down 0.9 per cent in 2018.

Many investors have been bracing for a pullback for months, as the stock market has minted record high after record high with investors encouraged by solid economic data and corporate earnings prospects, the latter bolstered by recently passed US corporate tax cuts.

Friday's January jobs report sparked worries over inflation and a surge in bond yields, as well as concerns that the Federal Reserve will raise rates at a faster pace than expected.

"The market has had an incredible run," said Michael O'Rourke, chief market strategist At JonesTrading In Greenwich, Connecticut.

"We have an environment where interest rates are rising. We have a stronger economy so the Fed should continue to tighten ... You're seeing real changes occur and different investments are adjusting to that," O'Rourke said.

THE RAW NUMBERS

- The Dow Jones Industrial Average fell 1175.21 points, or 4.6 per cent, to 24,345.75
- The S&P 500 lost 113.19 points, or 4.10 per cent, to 2648.94
- The Nasdaq Composite dropped 273.42 points, or 3.78 per cent, to 6967.53.
- The S&P 500 ended 7.8 per cent down from its record high on January. 26, with the Dow down 8.5 per cent over that time.

Even with the sharp declines, stocks finished above their lows touched during the session. At one point, the Dow fell 6.3 per cent or 1597 points, the biggest one-day points loss ever, as it breached both the 25,000 and 24,000 levels during trading.

The stock market has climbed to record peaks since President Donald Trump's election and remains up 23.8 per cent since his victory. Trump has frequently touted the rise of the stock market during his presidency.

As the stock market fell on Monday, the White House said the fundamentals of the US economy are strong.

The CBOE Volatility index, the closely followed measure of expected near-term stock market volatility, jumped 20 points to 30.71, its highest level since August 2015.

Until recently, gains for stocks have come as the market has been relatively subdued, and any declines were met with buyers looking for bargains.

"People who have been buying the dip are now going to be selling the rip," said Dennis Dick, a proprietary trader at Bright Trading LLC in Las Vegas.

The psychology of the market changed today. It'll take a while to get that psychology back.
About 11.5 billion shares changed hands in US exchanges, well above the 7.6 billion daily average over the last 20 sessions.

Declining issues outnumbered advancing ones on the NYSE by a 8.64-to-1 ratio; on Nasdaq, a 6.92-to-1 ratio favoured decliners.

The S&P 500 posted 1 new 52-week highs and 38 new lows; the Nasdaq Composite recorded 17 new highs and 164 new lows.

WHAT DOES IT MEAN FOR AUSTRALIA?
The worldwide plunge in equity markets has infected Australian shares with the local key indexes opening more than 2.5 per cent lower.

Within the first 15 minutes of trade the market had already exceeded Monday's losses, with the benchmark S&P/ASX200 index down 157.6 points, or 2.62 per cent, at 5868.6, and the broader All Ordinaries index down 164.7 points, or 2.69 per cent, to 5963.7 points by 1015 AEDT.

In futures trading, the SPI200 futures contract was down 153 points, or 2.57 per cent, at 5808 points.

Before the ASX opened, Treasurer Scott Morrison said the big dive on the US stock market is a recalibration associated with recent economic data.

He told reporters in Canberra the market was reacting to last week's US wage data and more bullish sentiment about what's happening with inflation and its impact on bond markets.

"Markets are volatile - when they recalibrate in relation to events like this you do see a bit of these events happening," he said.

"But people who watch these markets more and participate in them more closely than I do, I think, will see this for what it is and understand the forces behind it."

Share market volatility aside, Trade Minister Steven Ciobo says the Australian economy is behaving "exceptionally strongly".

"We are seeking really strong economic growth in Australia, we are seeing great employment creation," he told Sky News.