North Korea on Sunday conducted its sixth nuclear test, which it said was of an advanced hydrogen bomb for a long-range missile, marking a dramatic escalation of the regime's stand-off with the United States and its allies.

With U.S. markets closed on Monday for the Labor Day holiday, Tuesday marked the first regular trading since the geopolitical developments. The benchmark S&P was flirting with a percentage decline of at least 1 percent, a rarity in 2017 as the stock market has steadily climbed to all-time highs.

"North Korea seems to be what gets the biggest reaction, at least over the last month or two," said Aaron Jett, vice president for global equity research at Bel Air Investment Advisors in Los Angeles.

"It’s basically just a risk-off day ... There is no data, no earnings, nothing really fundamental to move the market today, so it sells off when there’s a scary headline again,” Jett said.

The Dow Jones Industrial Average fell 234.69 points, or 1.07 percent, to 21,752.87, the S&P 500 lost 22.17 points, or 0.90 percent, to 2,454.38 and the Nasdaq Composite dropped 73.84 points, or 1.15 percent, to 6,361.49.6,361.49

Wall Street may face a bumpy road in September, typically the worst month for stocks, if there is a showdown in Washington over the U.S. budget and the federal debt ceiling. Investor nerves on Tuesday may have been heightened by news of a powerful storm heading to the southern United States closely on the heels of devastation in Texas from Hurricane Harvey.

The CBOE Volatility index, the most widely followed barometer of expected near-term stock market volatility, rose 3.05 points to 13.18.

"It looks as though escalation has gone to the next level, but there are lot of things in the coming weeks that may be causing people to get a little bit more cautious," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin.

Financials were the worst-performing sector, dropping 2.1 percent and putting them on track for their biggest one-day fall since mid-May.

Federal Reserve Governor Lael Brainard said the U.S. central bank should delay raising U.S. interest rates until it is confident inflation that is now "well short" of target will rebound.

Goldman Sachs' shares fell 3.3 percent, dragging down the Dow, while the S&P was pulled lower by a more than 2 percent fall in shares of JPMorgan and Bank of America.

Aerospace stocks were rattled by United Technologies' $23 billion deal to buy avionics maker Rockwell Collins . United Technologies shares slumped 5.3 percent and were the Dow's biggest decliners, while shares of fellow Dow component, plane maker Boeing, fell 1.3 percent. Rockwell Collins shares rose 0.4 percent.

Insmed shares more than doubled after the company said its drug for a rare lung disorder met the main goal in a late-stage study.

Declining issues outnumbered advancing ones on the NYSE by a 2.92-to-1 ratio; on Nasdaq, a 2.47-to-1 ratio favored decliners.

(Additional reporting by Sruthi Shankar in Bengaluru; Editing by Anil D'Silva and Nick Zieminski)