NEW YORK (TheStreet) -- Stocks moved off of session lows by mid-morning Tuesday shortly after the latest U.S. manufacturing data called into question the likelihood of a September rate hike. 

Benchmark indexes remained deep in the red, though, on fears over a China slowdown. The S&P 500 was down 1.8%, the Dow Jones Industrial Average fell 2%, and the Nasdaq slid 1.4%. The Dow fell back into correction. The falls are a worrying start to the new month after benchmark indexes closed out August, their worst month since May 2012. 

Manufacturing activity in the U.S. was at its weakest in 22 months in August, according to the final reading of the Markit U.S. PMI. The index came in at 53 in August, down slightly from 53.8 in July. Economists had forecast a reading of 52.9.

A separate survey found manufacturing growth at its weakest level since mid-2013. The Institute for Supply Management said its index fell to 51.1 in August from 52.7 in July. Economists had expected a reading of 52.2.

"This is a very disappointing report, and it provides some early indication that the fallout from the continued uncertainty about Chinese and global growth is beginning to be reflected in the data," said Millan Mulraine, deputy chief U.S. economist at TD Securities. "We look for the Fed to take a pass on raising rates later this month as they continue to assess the incoming economic data for any evidence of fallout."

Meanwhile, construction spending climbed to its highest level in seven years. The Commerce Department reported a 0.7% increase in spending July to $1.08 trillion. June's reading was also revised upwards to 0.7% from an original estimate of 0.1% growth.

The Chinese economy looked to be in even worse shape after new data that showed its manufacturing sector contracting. China's official Purchasing Managers' Index slid to 49.7 in August, down from 50 in July, its worst reading in three years. Separately, the Caixin China manufacturing PMI fell to its lowest level since March 2009, down to 47.3 in August. China's Shanghai Composite fell more than 1%.

Head of the International Monetary Fund, Christine Lagarde, has warned emerging economies to prepare for the slowdown in the world's second-largest economy. Lagarde also warned global growth could be weaker than the IMF's forecast two months ago.

"As the Chinese economy is adjusting to a new growth model, growth is slowing -- but not sharply, and not unexpectedly," Lagarde said in comments while visiting Indonesia. "Other emerging economies, including Indonesia, need to be vigilant to handle potential spillovers from China's slowdown and tightening of global financial conditions."

High-momentum tech companies were selling off. Tesla (TSLA) slid 2.4%, Netflix (NFLX) fell more than 5%, Apple (AAPL) was down nearly 2%, and Google (GOOGL) slipped 1.6%.

Oil prices pulled back from Monday's highs on concerns over weakening demand in China, the world's second-largest economy. The commodity had spiked more than 8% to its best close in six weeks on Monday after the EIA lowered its estimates of U.S. production and on reports the Organization of Petroleum Exporting Countries was considering cutting its own. West Texas Intermediate crude fell 4.2% to $47.16 a barrel on Tuesday morning.

In earnings news, Dollar Tree (DLTR) fell more than 7% after missing estimates on its top- and bottom-lines. The discount chain earned 67 cents a share, a penny below estimates, while revenue of $3.01 billion missed by $30 million. Gross profit margins fell 580 basis points to 28.4% on markdown expenses tied to its acquisition of Family Dollar.

Fiat Chrysler (FCAU) reported a 1.7% increase in unit sales in August, well above estimates of a 0.5% increase. Trucks drove growth with sales up 5% to offset a 10% decline in car sales. Fiat recorded its best month of August sales since 2002.

General Motors (GM) reported a 0.7% decline in unit sales to 272,512 in August, a narrower drop than an estimated 1% to 3% decline. Retail sales increased 6% over the month. 

Ford (F) sold 234,237 units over August, up 5.4% compared to an estimated 2% increased. Passenger car sales fell 7%, but were offset by an 11.3% increase in truck sales. 

General Electric (GE)  announced more than $1 billion in orders from Asia Pacific customers for its power generation systems and software. Shares were down nearly 3%, in line with broad market losses.