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US stocks fell steeply on Tuesday as investors grew fearful that the turmoil in the banking sector has not been contained, and ahead of a key policy decision from the Federal Reserve, according to a media report.

The Dow fell about 550 points, or 1.6 per cent, by midday Tuesday. The broad-based S&P 500 slid 1.7 per cent and the tech-heavy Nasdaq slipped 1.4 per cent, CNN reported.

All three major indexes are on pace to end the week down.

Shares of PacWest Bancorp tumbled about 22 per cent, paring back earlier losses. Western Alliance Bank fell about 16.3 per cent and New York Community Bancorp declined 6.6 per cent. The SPDR S&P Regional Banking ETF, which tracks a range of mid-sized banks, dropped about 7.3 per cent, CNN reported.

The big banks weren't also spared. Wells Fargo fell 3.9 per cent, Citigroup slipped 2.3 per cent and Bank of America declined 3.6 per cent.

Shares of JPMorgan Chase dropped 1.1 per cent after notching a 2.1 per cent gain on Monday, following its purchase of most of collapsed regional lender First Republic Bank's assets.

While CEO Jamie Dimon assured shareholders on a Monday call that the banking tumult has been contained, investors still appear to be skittish.

Along with the upcoming Fed rate hike announcement due Wednesday afternoon, and fears about the debt ceiling that's creating a storm of worries on Wall Street, said Dan Eye, chief investment officer at Fort Pitt Capital Group, CNN reported.

Since investors are already expecting a quarter-point rate hike on Wednesday, Fed commentary will be the focus for markets, Eye said.

Investors will be watching for clues about the state of credit conditions following three bank failures, as well as about the Fed's planned trajectory for future rate hike decisions.