Wall St drops on global demand concerns

US stocks were sharply lower on Tuesday on concerns about the impact of lower oil prices on the global economy and the effect of political turmoil in Greece on the Euro zone.

Brent crude touched a fresh five-year low of $65.29 on Tuesday and was last down 0.3 per cent to $65.97. Oil prices have been under pressure as the dollar has strengthened and the Organization of the Petroleum Exporting Countries(Opec) decided against an output cut.

"It's oil, oil and more oil, and all eyes are on oil here because, even though it certainly does support the economic momentum driven by the consumer, it certainly does detract from the cyclical sectors of the market," said Anastasia Amoroso, Global Market Strategist at J P Morgan Funds in New York.

"Until we see stabilisation in the price of oil, it's difficult to see a stabilisation in the price of energy shares, so that will continue to weigh on the market."

Political unrest in Greece also brought about investor nervousness after the government brought a presidential vote forward in a political gamble that raised uncertainty over the country's transition out of its bailout.

The Shanghai Composite Index dropped more than 5 per cent, its biggest drop in more than five years, also weighing on investor sentiment.

Adding to the cautious tone was speculation if the US Federal Reserve will change its language to keep rates near zero for a "considerable time" when policymakers meet next week after the strong jobs report on Friday.

The Dow Jones industrial average fell 157.13 points, or 0.88 per cent, to 17,695.35, the S&P 500 lost 18.81 points, or 0.91 per cent, to 2,041.5 and the Nasdaq Composite dropped 52.00 points, or 1.1 per cent, to 4,688.69.

The benchmark S&P index fell 0.7 per cent on Monday, its biggest drop since October 22. The S&P 500 has climbed for seven straight weeks, and is up 9.6 per cent from its October low after a drop of 1.6 per cent in the past two sessions.