Wall Street stocks staged a feverish comeback Monday ahead of a key Federal Reserve meeting after stumbling to multi-month lows that briefly took the S&P 500 into a correction.

US equities were in the red most of the day, extending January's market weakness and following a bruising day for European equities, before later rebounding.

"There's no doubt the market was oversold on a short-term basis and was due for a bounce," said Briefing.com.

"Fortunately for the bulls, the bounce happened today on no specific news and some short-covering activity in front of an eventful week in (earnings), the Fed and economic data."

At their lowest points, the S&P 500 fell into a correction -- a drop of 10 percent from a recent peak -- while the Nasdaq approached a "bear market," a fall of 20 percent.

The drops came after a rough session in Europe, where Paris and Frankfurt tumbled around four percent and London lost 2.6 percent.

But the Dow Jones Industrial Average finished up 0.3 percent at 34,364.50, recovering more than 1,200 points from its lowest point of the day.

Much of the source of weakness throughout January has been a sharp pivot from the Federal Reserve away from its highly accommodative monetary policy during the pandemic.

But the Fed has taken a hawkish tone as it becomes increasingly concerned about inflation, which is sitting at a four-decade high.

Commentators have tipped the first increase in borrowing costs in March followed by another three hikes before the end of the year, and the Fed is also forecast to start running down its vast bond holdings that have helped keep rates down.

Analysts said Wednesday's meeting could send markets in either direction depending on how the tone compares with expectations.

"If the Fed comes out and sends a more hawkish message on Wednesday that could send things right back down," said Karl Haeling at LBBW.

"On the other hand, there have been some extreme bearish forecasts on the Fed, so it's also possible that the Fed comes out hawkish but a little less than some of their statements lately, and the market could have a big bounce."

Besides the Fed, the session also was beset by worries over a possible Russian invasion of Ukraine, after the United States, Britain and Australia ordered diplomats' families to leave the capital Kyiv amid soaring tensions over Moscow's deployment of some 100,000 troops to its neighbor's borders.

Some analysts have however questioned the sell-off over the last few days.

Oil prices are have been boosted by optimism about demand as economies recover from the pandemic Oil prices are have been boosted by optimism about demand as economies recover from the pandemic Photo: AFP / Paul Ratje

JPMorgan Chase analysts called the downturn "overdone," saying the trend is "out of line with activity momentum, easing bottlenecks and what we expect to be a strong earnings season."

New York - Dow: UP 0.3 percent at 34,364.50 (close)

New York - S&P 500: UP 0.3 percent at 4,410.13 (close)

New York - Nasdaq: UP 0.6 percent at 13,855.13 (close)

London - FTSE 100: DOWN 2.6 percent at 7,297.15 (close)

Paris - CAC 40: DOWN 4.0 percent at 6,787.79 (close)

Frankfurt - DAX: DOWN 3.8 percent at 15,011.13 (close)

EURO STOXX 50: DOWN 4.1 percent at 4,054.36 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 24,656.46 (close)

Euro/dollar: DOWN at $1.1329 from $1.1344 late Friday

Pound/dollar: DOWN at $1.3489 from $1.3553

Euro/pound: UP at 83.94 pence from 83.70 pence

Brent North Sea crude: DOWN 1.8 percent at $86.27 per barrel

West Texas Intermediate: DOWN 2.1 percent at $83.31 per barrel