The Dow Jones Industrial Average .DJI fell 129.76 points, or 0.48%, to 26,792.36, the S&P 500 .SPX lost 16.54 points, or 0.55%, to 2,973.87 and the Nasdaq Composite .IXIC dropped 68.52 points, or 0.84%, to 8,093.28.
Deutsche Bank dropped 6.1% after the German bank announced a massive restructuring.
"We are lowering our exposure to global equities to the range we consider "underweight", Morgan Stanley's London-based strategist Andrew Sheets said in a note.
Those expectations were tempered by a U.S. labor report that showed nonfarm payrolls jumped 224,000 in June, beating forecasts for 160,000, in a sign the world's largest economy still had fire.
In the currency market, fading expectations of aggressive easing by the Fed helped the dollar.
Money market futures 0#FF: are still fully pricing in a 25 basis point cut at the Fed's next policy meeting on July 30-31, but have nearly priced out a larger 50 basis point reduction.
"The markets are likely to further walk back rate cut expectations after the upcoming semi-annual monetary policy report scheduled to be delivered by Chairman Powell this week", said Steven Ricchiuto, US Chief Economist at Mizuho Americas.
The Greek stock index rallied at the open to hit a new February 2015 high before erasing gains and slipping 1.3% as traders booked profits after Greece's opposition conservatives returned to power with a landslide victory in snap elections on Sunday.
"The Fed is following, but the European Central Bank and the Bank of England are laggards".
The latest news on the China-US trade talks failed to make an impression on markets.
"Whether the negotiators can find a solution to the hard structural issues that remain between the two sides is another matter, and Kudlow cautioned there was "no timeline" to reach an agreement", National Australia Bank strategist Rodrigo Catril said.
Erdogan, who is battling to boost Turkey's struggling economy, has repeatedly railed against high interest rates and called for them to be lowered to stimulate growth.
The dollar index versus a basket of six major currencies was little changed at 97.374 on Tuesday, which was close to a three-week high of 97.443 hit on Friday.
Federal Reserve Chairman Jerome Powell is scheduled to give testimony on monetary policy before Congress on Wednesday and Thursday, which some investors expect will provide clues regarding the likelihood of a rate cut from the USA central bank when it meets at the end of the month.
Apple dropped 2.1% and Pfizer slipped 1.8%. Brent crude futures LCOc1 fell 12 cents, or 0.19%, to settle at $64.11 a barrel, while USA crude futures CLc1 rose 15 cents, or 0.26%, to settle at $57.66 a barrel.
Oil prices dropped two cents to $57.49 US a barrel.
Boeing Co fell 1.4% after Saudi Arabian budget airline flyadeal said it would not proceed with a provisional $5.9 billion order for the planemaker's grounded 737 MAX aircraft, instead opting for a fleet of Airbus A320 jets.