New York stock indexes plunged Monday, as investors continued to deal with the fallout of the China-U.S. trade war.

The S&P 500 dropped 87.31 points, or 3 per cent, to 2,844.74 for its worst loss since December, when the market was wrapped in the throes of recession fears. It was down as much as 3.7 per cent in the afternoon.

The Dow Jones Industrial Average lost 767.27, or 2.9 per cent, to 25,717.74, and the Nasdaq composite fell 278.03, or 3.5 per cent, to 7,726.04.

Canada's TSX index was not trading because of the August Civic holiday.

The price of oil also declined amid fears of depressed demand because of the trade war. West Texas Intermediate crude fell 85 cents to $54.85 US a barrel.

Just 10 days ago, U.S. stocks were trading at record levels, but the Trump administration's threat to impose more 10 per cent tariffs Sept. 1 on $300 billion of Chinese imports has knocked back markets around the world.

"The Great China Trade Deal evaporated before our eyes last week and investors should stop hoping it back into existence," Christopher Smart, head of the Barings Investments Institute, wrote in a report.

On Monday, China allowed its currency to decline below the politically sensitive level of seven yuan to the U.S. dollar.

Market forces usually would act to drive down the yuan in response to U.S. actions against Chinese goods, but China's central bank previously has been allowing the currency to hold its value so as not to further inflame trade tensions.

Investors are interpreting Monday's fall in the yuan as a new front in the trade war and are worried about a global economic slowdown as a result of the trade war.

The all-important American consumer stands to suffer as a result of tariffs and that could further threaten U.S. growth. The latest round of tariffs on Chinese goods would cost U.S. households an average of $200 a year, some economists estimate, and would start to bite consumers and retailers just as the holiday shopping season begins.

That cost would come on top of the roughly $830 cost imposed per household from Trump's existing tariffs, according to a New York Federal Reserve analysis.

The U.S. economy is still growing and unemployment is low, but a threat of global recession could end its run and drag down profits at U.S. companies.

Technology stocks took the worst hit in the early going as many of those companies stand to suffer more than other sectors if the trade war between the U.S. and China continues to escalate. Apple fell 5.0 per cent and Microsoft fell 4.3 per cent.

Investors fled to less risky holdings. Bond prices spiked and pushed yields on the benchmark 10-year Treasury down to 1.77 per cent from 1.85 per cent on Friday.