Oil prices slumped more than 4% and global stocks retreated amid growth worries ahead of key US employment data later in the week.

Major US indices spent the entire day in the red, with the Nasdaq finishing down more than 3% following lacklustre manufacturing data.

The Institute for Supply Management's manufacturing index was 47.2% in August, up slightly from a month earlier, but still well below the 50-point mark separating expansion from contraction.

ISM officials said demand remained subdued, leading to a fifth straight month of contraction.

The stock market losses come ahead of major employment data later in the week that will have a say in upcoming US monetary policy decisions.

The prior jobs report sparked a brief but dramatic sell-off in US equities, elevating recession fears before subsequent economic reports bolstered confidence.

Another weak jobs report would be a significant headwind, said Art Hogan, chief market strategist at B Riley Wealth.

"Then you have two in a row and you start to be concerned about the future of the economy and jobs," Hogan said.

Analysts noted that September is an historically weak period for stocks.

"I think there's just profit taking, kind of rebalancing going on there", said Sam Burns, chief strategist of Mill Street Research. And now that earnings season is over, there's much less in terms of corporate news to drive things.

Earlier, bourses in Europe and Asia also pulled back, while oil prices hit eight-month lows.

With oil producers reluctant to cut output — the Opec oil cartel and its allies have even been considering boosting production — oil prices have been on a downward trend.

The fact that recent data shows no signs of any acceleration in import demand in China, Europe or North America points to a situation where the oil market is not going to be as tight as expected a few months ago, said market analyst Fawad Razaqzada at City Index and forex.com.

In foreign exchange, the yen strengthened after Bank of Japan chief Kazuo Ueda restated his intention to lift interest rates again if inflation and the economy meet its forecasts.

The bank's surprise decision to hike in July, hours before the Federal Reserve indicated it was ready to begin cutting US borrowing costs, sparked a massive unwind of the so-called yen carry trade in which investors used the cheap currency to buy high yielding assets like stocks.

In company news on Tuesday, shares in Cathay Pacific slipped as the Hong Kong carrier said that 15 of its Airbus A350 jets needed new engine parts after inspecting its entire fleet, which was grounded following a first of its type engine component failure.

But shares in British engine manufacturer Rolls-Royce, whose Trent XWB-97 engines powered the planes, gained 2.4% after starting the week with a 6.5% drop as not all of Cathay's A350s were affected. – AFP