U.S. stocks fell sharply on Tuesday to close lower after President Donald Trump said he was calling off negotiations with Democratic lawmakers on coronavirus relief legislation until after the election.

Stocks were higher before the remarks, but reversed course after Trump made the comments on Twitter.

Stocks fell to a session low shortly after the tweet, taking the S&P 500 down more than 2% from its session high.

"Much of the rally we've seen in the last week in particular was based on hopes for an additional stimulus package," said Robert Phipps, director at Per Stirling Capital Management in Austin, Texas. "There's now a whole lot less reason to put money to work before the election."

The Dow Jones Industrial Average fell 375.88 points, or 1.34%, to 27,772.76, the S&P 500 lost 47.68 points, or 1.40%, to 3,360.95, and the Nasdaq Composite dropped 177.88 points, or 1.57%, to 11,154.60.

Earlier in the session, Federal Reserve Chair Jerome Powell warned that the U.S. economic recovery remained far from complete.

Powell said the domestic rebound could still slip into a downward spiral if the coronavirus is not effectively controlled and growth sustained.

Hopes that a stimulus deal was still possible had helped to recoup losses from last week that were sparked by the news that Trump had contracted COVID-19.

Consumer discretionary shares were among the biggest weights on the S&P 500. 

GLOBAL MARKETS

Wall Street took a nosedive late in the session on Tuesday, reversing solid gains to close deep in negative territory after President Donald Trump announced he was calling off talks on coronavirus relief legislation until after the Nov. 3 election.

All three major U.S. stock indexes closed more than 1% lower.

"The markets finally ran out of hope Speaker (Nancy) Pelosi and (Treasury) Secretary (Steven) Mnuchin would pull a rabbit out of a hat," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

Trump's announcement in a tweet came on the heels of U.S. Federal Reserve Chair Jerome Powell's warning of dire economic repercussions if Congress failed to pass additional fiscal stimulus.

"Powell called for Congress to act quickly and Trump effectively pulled the rug out from under that," said Oliver Pursche, president of Bronson Meadows Capital Management in Fairfield, Connecticut. "It's troubling, given the statements Chairman Powell made earlier today."

In remarks delivered online to the National Association for Business Economics, Powell warned the U.S. economy could slip into a downward spiral if the coronavirus is not contained and Congress fails to deliver additional fiscal support to businesses and households.

The pan-European STOXX 600 index rose 0.07% and MSCI's gauge of stocks across the globe shed 0.75%.

Crude prices extended gains, boosted by supply disruptions from approaching storms in the Gulf of Mexico and an ongoing oil worker strike in Norway.

U.S. crude futures settled at $40.67 per barrel, a gain of 3.7%, while Brent gained 3.29% on the day to settle $42.65 per barrel.

The dollar, essentially flat for much of the session, jumped against a basket of world currencies after Trump's tweet.

The dollar index rose 0.21%, with the euro down 0.27% to $1.1749.

The Japanese yen strengthened 0.14% versus the greenback at 105.62 per dollar, while Sterling was last trading at $1.2902, down 0.58% on the day.

U.S. Treasury yields dropped from four-month peaks after Trump's announcement.

Benchmark 10-year notes last rose 5/32 in price to yield 0.7469%, from 0.762% late on Monday.

The 30-year bond last rose 13/32 in price to yield 1.5501%, from 1.567% late on Monday.

Gold prices were lower after the safe-haven precious metal erased earlier gains.

Spot gold dropped 1.4% to $1,886.71 an ounce.