The Dow shed almost 900 points, falling more than 3% to close at 27,081. The S&P 500 also closed more than 3% lower, while the Nasdaq sank 2.8%,
The declines followed drops overseas. In the UK, the FTSE 100 fell almost 2% to a 12-month low of 7,018, while Japan's Nikkei 225 index fell 3.3%.
The slump followed a global stock market plunge on Monday.
On Tuesday, airlines and travel companies, as well as firms that rely on China as part of their supply chain, were again among the most affected. Oil prices also dropped.
'This might be bad'Losses on US markets accelerated after US health officials warned that the public should expect cases to spread.
"We are asking the American public to prepare for the expectation that this might be bad," said Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases.
The number of cases of coronavirus outside China is growing.
At least 280 people have been diagnosed with the virus in Italy, where seven have died. A handful of cases have also been identified in Switzerland, Austria, France and Germany.
In the US, which has confirmed 57 cases, the White House sought to calm fears that the spread would derail the economy.
"This is very tightly contained in the US," White House economic adviser Larry Kudlow told broadcaster CNBC. "I think this thing will run its course and the US is in excellent shape."
However, investors continued to sell stocks. Shares in American Airlines fell 9%, while Norwegian Cruise Line Holdings and Marriott dropped almost 8%.
Source- BBC /Business