NEW YORK (MarketWatch) — U.S. stock futures and Treasury bonds fell sharply Monday, joining a global selloff after Shanghai stocks tumbled 5.3% overnight on increasing fears over a liquidity crunch in China.

Futures for the Dow Jones Industrial Average US:DJU3 sank 100 points, or 0.7%, to 14,611, while those for the Standard & Poor’s 500 index US:SPU3 fell 11.30 points, or 0.7%, to 1,572.60. Futures for the Nasdaq 100 index US:NDU3 fell 14 points, or 0.5%, to 2,851.

In the U.S. government-debt markets, the 10-year Treasury yield US:10_YEAR, which moves inversely to price, surged 10 basis points to 2.636%.

Builders hope for a rally

European stocks tumbled as Shanghai stocks melted down.

“I would suggest that almost all of the downward movement in U.S. futures ... is due to the concern over the state of the Chinese economy and the implications for the rest of the world,” said Stephen Pope, managing partner at Spotlight Ideas, in emailed comments. “I am convinced we have overdone the downside with regard to that [Federal Reserve] story, but now with China we have another excuse to trade with timidity.”

The Shanghai Composite index SHCOMP, +0.29% plunged 5.3% to 1,963.24, led by bank stocks. It was the first close below 2,000 since December, and the percentage drop was its worst since a 6.7% fall in August 2009.

A cash crunch in China took a toll on bank stocks. Short-term interbank interest rates in Shanghai were off last week’s highs but still above 6% on Monday. Financial stocks fell on fears that Beijing officials may be unwilling to ease that liquidity crunch. China’s central bank warned Monday that banks need to control liquidity better.

Goldman Sachs downgraded its GDP growth forecasts for China to 7.4% and 7.7% for 2013 and 2014, respectively, from 7.8% and 8.4%, previously.

“The recent tightening of the interbank market has sent a strong policy signal that the strong credit growth earlier in the year will likely not continue,” wrote Goldman economist Li Cui in a note.

Electronic board shows stock information Monday at a brokerage house in Huaibei, Anhui Province. Reuters

“The overriding fear is that what is in the long-term interest of China, as they act to constrain the domestic bubble, is going to prove problematic for the economies of the developed world in the short term,” added Pope.

Also see: 7 ways to spot a market top.

U.S. stocks mostly eked out modest gains Friday in a choppy session but posted weekly losses after the Federal Reserve signaled it may scale back bond purchases later this year if the economy continues to improve as central-bank policy makers expects.

The S&P 500 SPX, -0.84% fell 2.1% for the week, while the Dow industrials DJIA, -0.46% fell 1.8% for the week, its worst since the week ended April 19. The Nasdaq Composite COMP, -1.26% fell 1.9% for the week.

The Federal Reserve has fallen short of its inflation and employment objectives, New York Fed President William Dudley said Monday. Dudley said that Fed policy, while aggressive by historical standards, is not sufficiently accommodative. Read: Economy won't shift into higher gear soon.

In corporate news, shares of Vanguard Health Systems Inc. US:VHS soared 66% in premarket trading after Tenet Healthcare Corp. THC, +3.00% agreed to acquire it for about $1.63 billion, or $21 in cash per Vanguard share. That marks a 70% premium to Vanguard’s Friday close of $12.37.

Shares of Apple Inc. AAPL, -1.59% fell 1.4% in premarket trading after Jefferies cut its price target to $405 from $420, saying the technology company may slow iPhone production.

Commodities were under pressure as precious- and base-metal prices fell over concerns about China, a major consumer of commodities. Gold dropped as Goldman cut its 2013 and 2014 price predictions for the metal, saying economic activity will improve, which will mean a less-accommodative Fed policy stance. Silver declined as UBS cut its forecasts, saying the metal will be dragged lower on gold’s coattails.

Oil prices also fell, while the dollar gained.