Stocks fell on Monday after Chinese equities dropped sharply and commodities fell on concerns that asset prices have run ahead of the economic realities.

Financial shares also pulled back after a recent rally, with American International Group Inc falling 9.5 percent after Barron's said the stock was overpriced and also recommended investors take profits in Citigroup Inc , which dropped 5 percent.

Weighing on sentiment, the Shanghai Composite Index <.SSEC> dived 6.7 percent to a three-month closing low and recorded its second-biggest monthly loss in 15 years on worries that corporate earnings failed to justify stock valuations.

The slide hurt commodity prices, with oil down more than 3 percent.

Investors in the United States felt it was important for China to help lead the path to economic recovery, said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. If their markets are going to misbehave, it opens the question of whether they are going to see a recovery.

The Dow Jones industrial average <.DJI> was down 96.36 points, or 1.01 percent, at 9,447.84. The Standard & Poor's 500 Index <.SPX> was down 12.82 points, or 1.25 percent, at 1,016.11. The Nasdaq Composite Index <.IXIC> was down 27.66 points, or 1.36 percent, at 2,001.11.

A regional report that showed manufacturing in the U.S. Midwest was on the cusp of expansion did little to boost sentiment, with all three major indexes falling more than 1 percent by mid-morning.

The Institute for Supply Management-Chicago said on Monday its index of Midwest business activity rose in August to 50.0 from 43.4 in July.

(Additional reporting by Leah Schnurr; Editing by Padraic Cassidy)