The drop interrupted a prolonged advance in the market and erased its gains for July. It was only the second monthly loss for stocks this year, after January.
The Dow Jones industrial average plunged 317 points, or 1.9 per cent, to close at 16,563 Thursday.
The Standard & Poor's 500 index dropped 39 points, or 2 per cent, to 1,930. The Nasdaq composite dropped 93 points, or 2.1 per cent, to 4,369.
The S&P 500 closed at a record high just one week ago.
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