Wall Street drops, as anxious investors eye China

U.S stocks finished sharply lower on Monday and were on track for their worst quarter in four years as investors worried about the health of China's economy and its potential impact on the timing of a U.S. interest rate increase.

The Nasdaq composite .IXIC lost 3 percent and S&P 500.SPX dropped more than 2 percent.

Much of the damage came from pharmaceutical and biotech stocks after Democratic lawmakers on Monday attacked "massive" price increases of two heart drugs from Canada's Valeant Pharmaceuticals International Inc(VRX.TO), which tumbled 16.5 percent.

The Nasdaq biotechnology index .NBI fell 6 percent, its worst one-day drop since 2011, adding to losses from last week when Democratic presidential candidate Hillary Clinton criticized drug pricing.

Among the S&P sectors, the health care index .SPXHC was the deepest decliner, down 3.84 percent.

"The broad healthcare sector and China are hurting the market. It's time for risk-off and there's no place to hide," said Richard Weeks, managing director at HighTower Advisors in Vienna, Virginia.

Profits at Chinese industrial companies fell 8.8 percent, fresh data showed, pushing down shares of raw material producers and energy companies. Oil prices fell more than 2 percent.

U.S. consumer spending rose more than expected in August, according to another report, appearing to add to the case for an interest rate increase this year.

But contracts to buy previously owned U.S. homes decreased, indicating the robust housing market could be losing some steam.

The Federal Reserve held off from raising rates at its September meeting, citing concerns about the global economy, notably China, among other factors.

New York Federal Reserve President William Dudley on Monday suggested the central bank could pull the trigger as soon as October.

"A lot of investors think the Fed is confused," said Mohannad Aama, Managing Director at Beam Capital Management LLC. "They're putting themselves in a corner by saying they expect to raise rates between now and the end of the year when the economy every day is proving otherwise."

Several other Fed officials are scheduled to speak during the week, including Chair Janet Yellen on Wednesday.