Bogged down in the China-U.S. trade tension, the U.S. manufacturing sector stumbled and fell into contraction in August for the first time in three years. 

The Institute for Supply Management (ISM) showed the nationwide manufacturing index fell unexpectedly to 49.1, ending 35 months of expansion and hitting the lowest level since January 2016. 

Any reading above 50 indicates expansion, while figures below 50 percent indicate contraction. For the past 12 months, the PMI figure averaged at 54.4 percent, the ISM report showed.

"The PMI contracted for the first time since August 2016," said Timothy Fiore, chair of the ISM's Manufacturing Business Survey Committee, adding that the latest figure "ended a 35-month expansion period in which the composite index averaged 56.5 percent."

The protracted global trade tensions and the fear of a recession in the U.S. economy were cited by survey respondents as the main concerns, according to the report.

"While business is strong, there is an undercurrent of fear and alarm regarding the trade wars and a potential recession," said one respondent representing the chemical industry.

In the name of protecting domestic industries, the U.S. has once again hiked tariffs on billions of U.S. dollars' worth of products from China, and China has taken countermeasures.

"Incoming sales seem to be slowing down, and this is usually our busiest season," said another respondent who makes furniture and other products, highlighting concerns "about the economy and tariffs."

The report also showed that the employment index was down 4.3 percentage points to 47.4 percent, the new orders index dropped by 3.6 percentage points to 47.2 percent, and the supplier deliveries index dipped by 1.9 percentage points to 51.4 percent.

About 58 minutes into trading, the Dow Jones Industrial Average was at 26,011.77, down 1.48 percent in the first session of the week following Monday's Labor Day holiday. 

The S&P 500 dropped 1.02 percent to 2,896.69, while the tech-rich Nasdaq Composite Index fell 1.05 percent to 7,879.40.

(With input from Xinhua)