NEW YORK (Reuters) - Slumping crude prices and a dour start to Wall Street’s corporate earnings season pulled down U.S. and European equities on Tuesday, while the dollar hit an eight-month high on increasing bets U.S. interest rates will rise in December.

Traders work on the floor of the New York Stock Exchange (NYSE) as the market closes in New York, U.S., October 3, 2016. REUTERS/Lucas Jackson

Wall Street fell more than 1 percent as shares of aluminum producer Alcoa AA.N and diagnostics test maker Illumina ILMN.O plunged, with worries over the make-up of the U.S. Congress after November's election also weighing on stocks.

Alcoa shares tumbled 11.4 percent and Illumina plummeted 24.8 percent, casting a pall over the market. Wall Street's "fear gauge," the CBOE Market Volatility index .VIX, jumped almost 24 percent at one point and ended the day up 15 percent.

Investors were also jittery about earnings to be reported on Friday by Wells Fargo WFC.N and Citigroup C.N, according to brokerage Seaport Global.

The UK benchmark FTSE 100 equity index .FTSE reversed course after it set a record intraday high that was helped by further sterling weakness.

The British pound has lost more than 4 percent of its value against the dollar over the past week as investors fret about a “hard exit” by Britain from the European Union.

In the United States, investors were looking to Wednesday’s release of minutes from the Fed’s policy-setting meeting in September for signs of a December interest rate hike.

The futures market perceives a roughly 70 percent chance that the Fed will lift rates in December, a view that pushed the benchmark 10-year U.S. Treasury yield US10YT=RR to a more than four-month high.

“Recent data on jobs, manufacturing and services growth have shown compelling strength that could greenlight a U.S. rate hike by the end of the year,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The dollar index, which measures the greenback against six major currencies, was up 0.74 percent at 97.651 .DXY after hitting 97.731, its highest since late July.

The euro fell to more than a two-month low against the dollar and was last down 0.72 percent at $1.1057 EUR=. Against the yen, the dollar was down 0.14 percent at 103.43 JPY=.

Crude prices retreated from one-year highs on concerns a proposed production cut by the world’s largest oil exporters might not be enough to reduce a global glut.

The International Energy Agency said it was unclear how rapidly global oil supply could fall in line with demand even if Russia and OPEC agreed on a steep enough cut.

Brent crude oil LCOc1 settled down 73 cents at $52.41 a barrel and U.S. West Texas Intermediate crude CLc1 slipped 56 cents to settle at $50.79.

The Dow Jones industrial average .DJI closed down 200.38 points, or 1.09 percent, to 18,128.66. The S&P 500 .SPX fell 26.93 points, or 1.24 percent, to 2,136.73 and the Nasdaq Composite .IXIC lost 81.89 points, or 1.54 percent, to 5,246.79.

The market is in a corrective phase, with overvalued dividend stocks being sold, said Rahul Shah, chief executive of Ideal Asset Management.

“If we grind forward like this and you have overvalued sectors come down and undervalued sectors rise, you could set the base for a market that could have a strong rally in the future,” Shah said.

In Europe, the pan-regional FTSEurofirst 300 index .FTEU3 fell 0.6 percent to close at 1,342.19. MSCI's all-country stock index .MIWD00000PUS fell 1.18 percent.

Weaker commodity stocks weighed in Europe. The STOXX Oil & Gas index .SXEP fell 1.5 percent, making it the region's second-biggest sector loser after the STOXX Basic Resources index .SXPP, which fell 2.1 percent as metal prices retreated.

The 10-year U.S. Treasury note fell 8/32 in price to yield 1.7638 percent.