NEW YORK (CNNMoney) -- U.S. stocks tumbled to their lowest levels in two months Monday, as persistent worries about the Fed easing up on stimulus were exacerbated by a plunge in Chinese stocks.
The Dow Jones industrial average tumbled more than 200 points, or 1.5 percent, while the S&P 500 sank 1.8 percent and the Nasdaq lost 1.7 percent.
Fears about China pushed the CBOE Market Volatility Index up above 21 to its highest level of the year. The CNNMoney Fear & Greed Index dropped further into Extreme Fear, clocking in at its lowest level since June 2012.
Commodities were under pressure amid worries about a slowdown in global economic growth. Cooper prices sank nearly 3 percent. Both crude oil and Brent crude prices dropped to a three-week lows.
Credit crunch in China? The People's Bank of China told the country's largest banks Monday to rein in risky loans and improve their balance sheets, a warning that sent a jolt through already unsettled equity markets.
The Shanghai Composite index was hardest hit by the announcement, registering a decline of 5.3 percent. The Hang Seng in Hong Kong lost nearly 3 percent. Japan's Nikkei index declined by 1.3 percent.
The sell-off comes after short-term borrowing costs skyrocketed last week in China, leading to a credit crunch. The rate at which Chinese banks lend to each other overnight hit, which serves as a measure of liquidity in the financial market, hit a record high above 13 percent last week before moderating. Another key measure of cash in the banking system -- the 7-day "repo rate" -- peaked at 25 percent.
Investors are worried that less liquidity in the world's second-largest economy could further slow the shaky global recovery.
Fed worries persist, bond yields shoot higher: Last week's comments from Federal Reserve chairman Ben Bernanke sparked a rush out of bonds. Fresh concerns about China intensified that sell-off Monday.
As investors dumped bonds, yields continued to rise, with the yield on the 10-year Treasury note hitting 2.65 percent early Monday. That's its highest since August 2011.
Bernanke said at a news conference last week that the central bank could slow the pace of its bond-buying program later this year if the economy continues to improve.
The Fed's stimulus program has been a major driver of the bull market, and worries over its longevity are likely to generate market volatility in the months ahead.
Stocks by the numbers: With the recent heavy selling, all three indexes are about are down about 6 percent from the recent highs.
But they're still holding onto healthy gains year-to-date.
The Dow, S&P 500 and Nasdaq are up between 9 percent and 11 percent since the start of January.
Stocks on the move: Shares of Vanguard Health Systems surged almost 70 percent after inking a $1.8 billion acquisition deal with Tenet Healthcare Corp.
Apple shares fell below $400 a piece for the first time since mid-April after Jefferies' Peter Misek lowered his 12-month price target to $405 from $420.
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