Fears of COVID-19, a US debt default and the meltdown of Chinese property giant Evergrande hammered major Wall Street indices in Monday trading, sending them decisively lower around midday.

At about 1700 GMT, the benchmark Dow Jones Industrial Average had dropped 2.2 per cent to 33,823.70.

The broad-based S&P 500 also lost 2.2 per cent to 4,333.72 and the tech-rich Nasdaq Composite Index fell 2.7 per cent to 14,638.88.

Traders have headed for the exits over fears surrounding Evergrande, one of China's biggest developers that is awash in debt of more than $300 billion and teetering on collapse.

In a month known for rocky trading, concerns about the US debt limit is harming sentiment. The Republican opposition refuses to raise the cap despite warnings from the White House of an economic catastrophe in the event of an unheard-of US debt default.

The two-day Federal Reserve meeting beginning Tuesday is another source of uncertainty, as the central bank could announce changes to its stimulus policies. 

Traders also remain concerned about the economic impacts of Covid-19, which continues to spread across the country at high rates.

"Uncertainty regarding if the US debt ceiling will be raised is likely adding to the skittishness, while caution is likely setting in ahead of monetary policy decisions out of the US, UK, and Japan later this week," Charles Schwab investment bank said in a note.

Washington announced on Monday it will lift pandemic travel bans on all air passengers if they are fully vaccinated and undergo testing and contact tracing, but there were mixed results for shares of US airlines.

United Airlines was down 0.8 per cent and Delta Air Lines fell 0.6 per cent. However, American Airlines gained 0.8 per cent.