August losses
Energy companies led the way down on the Dow, with Chevron and Exxon Mobil down about 3%. This followed a fall in the oil price, which was down more than 4% at $51.89.
Before Tuesday's fall, the price of oil had risen by about 25% in the past three trading sessions.
The S&P 500 was also down about 2% at 1,934.18, while the tech-heavy Nasdaq was 1.6% lower at 4,699.21.
Global markets sustained heavy losses in August - for both the UK's FTSE 100 and the US's S&P 500, it was the worst month since May 2012.
As well as the poor China factory data, investors are unsure about the US central bank's next move. Many had pencilled in the a rate rise - the first move since the financial crisis - for September. However, given the recent stock turmoil, analysts seem less certain.
"The volatility is here to stay for a while, or at least till the Fed gives us an indication regarding a rate increase," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
"Right now, they are being quite cagey.