U.S. stock indices were close to 4 percent lower in afternoon trade on Monday but held above the day's worst levels after a dramatic turnaround in shares of Apple Inc (AAPL.O).

The Dow Jones industrial average .DJI briefly slumped more than 1,000 points, its biggest point-drop ever.

Related: World markets panic as China's market dives

By 2:57 pm, the Dow Jones industrial average was down 654.14 points, or 3.97 percent, at 15,805.61. The Dow has never lost more than 800 points in a day.

“It got very sloppy, and I think you then saw buyers start to emerge. But a lot of those buyers were short-term in nature and took some of their gains around lunch time. Now we're seeing a second wave of selling,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

The rout in U.S. equities followed an 8.5 percent decline in Chinese markets, which sparked a selloff in global stocks along with oil and other commodities.

Apple's Chief Executive Tim Cook, in comments to CNBC on Monday, took the unusual step of reassuring shareholders about the iPhone maker's business in China ahead of a dramatic 13 percent drop and rebound in its stock, which traded 2.08 percent lower at $103.55.

Apple's dramatic turnaround helped the Nasdaq Composite and the S&P 500 indexes pull away from levels that would have put them into correction mode. An index is considered to be in correction when it closes 10 percent below its 52-week high.

The S&P 500 .SPX lost 4.06 percent to 1,890.9 and the Nasdaq Composite .IXIC dropped 3.78 percent to 4,528.23.

All of the 10 major S&P 500 sectors were down, with energy losing 5.2 percent.

The CBOE Volatility index, popularly known as the “fear index”, briefly jumped as much as 90 percent to 53.29, its highest since January 2009.

The S&P 500 index showed 187 new 52-week lows and just two highs, while the Nasdaq recorded 600 new lows and eight highs.

“Emotions got the best of investors,” said Philip Blancato, chief executive at Ladenberg Thalmann Asset Management in New York.

“The conjecture that the Chinese economy can propel the U.S. economy into recession is ridiculous, when it's twice the size of the Chinese economy and is consumer based.”

U.S. oil prices were down about 5 percent at 6-1/2-year lows, while London copper and aluminum futures hit their lowest since 2009.

Oil majors Exxon (XOM.N) and Chevron (CVX.N) each fell more than 4 percent. U.S. oil and gas companies have already lost about $310 billion of market value this year.

The dollar index was down 1.67 percent. It fell more than 2 percent earlier to a 7-month low as the probability of a September rate hike receded.

Traders now see a 24-percent chance that the Federal Reserve will increase rates in September, down from 30 percent late on Friday and 46 percent a week earlier, according to Tullett Prebon data.

Wall Street's selloff shows investors are becoming increasingly nervous about paying high prices for stocks at a time of minimal earnings growth, tumbling energy prices, and uncertainty around a rate hike.

Alibaba (BABA.N) was down about 2.06 percent at $66.70, below its IPO price of $68, making it the second high-profile tech company to fall below its IPO price in the past week after Twitter (TWTR.N) on Thursday.

Before the market opened, futures on the Nasdaq, S&P and Dow indexes were halted briefly after hitting a circuit breaker, a step taken by exchanges to reduce volatility and give investors time to assess information.

Declining issues outnumbered advancers on the NYSE by 3,051 to 136. On the Nasdaq, 2,578 issues fell and 317 rose.