US STOCKS-Wall St pares losses but still down sharply

* Chinese market falls 8 percent

* At one point, Dow down more than 1,000 pts

* Oil hits new 6-1/2 year low

* Nasdaq futures briefly halted premarket

* Indexes down: S&P 2.8 pct, Nasdaq 2.78 pct, Dow 2.59 pct (Adds details, changes comment, updates prices)

By Tanya Agrawal

Aug 24 (Reuters) - Wall Street pared some losses on Monday after the Dow Jones industrial average lost more than a 1,000 points in volatile trading following a steep drop in Chinese shares and a selloff in oil and other commodities.

The Dow, which was down 325 points in mid-morning trading, has never lost more than 800 points in a day.

With Monday's selloff, the Nasdaq composite joined the Dow in sliding into correction territory. An index is considered to be in correction when it closes 10 percent below its 52-week high.

The S&P 500 index briefly went into the correction zone earlier in the session.

Futures on the Nasdaq, S&P and Dow indexes were halted briefly before the market opened after hitting a circuit breaker, a step taken by exchanges to reduce volatility and give investors time to assess information.

The New York Stock Exchange invoked a rarely used rule saying market makers don't have to disseminate price indications before the opening bell in an effort to make it easier and faster to open stocks on a volatile trading day.

At 10:37 a.m. ET (1437 GMT) the Dow Jones industrial average was down 425.75 points, or 2.59 percent, at 16,034, the S&P 500 was down 55.1 points, or 2.8 percent, at 1,915.79 and the Nasdaq Composite was down 130.74 points, or 2.78 percent, at 4,575.30.

All 10 major S&P 500 sectors fell, with health and finance falling about 3 percent. All the 30 stocks on the Dow Jones industrial average and more than 90 percent of the S&P 500 stocks were in correction territory at their session lows.

The CBOE Volatility index, a measure of the premium traders are willing to pay for protection against a drop in the S&P 500, jumped as much as 90 percent to 53.29, its highest since January 2009.

The S&P 500 index showed 185 new 52-week highs and just two lows, while the Nasdaq recorded 577 new lows and four highs.

Apple (NasdaqGS: AAPL - news) shares slid as much as 13 percent to hit a low of $92, losing nearly $80 billion of market value. The stock later recovered to trade at $105.37, down less than 1 percent.

The lack of new measures from Beijing to support Chinese stocks following an 11 percent drop last week sparked a plunge in global equities and a selloff in oil and commodities.

Oil fell more than 5 percent to a 6-1/2-year low, while London copper and aluminum futures hit their lowest since 2009.

Oil majors Exxon and Chevron (Swiss: CVX.SW - news) recovered somewhat to trade down 2 percent, having fallen more then 6 percent earlier in the day. U.S (Other OTC: UBGXF - news) . oil and gas stocks have already lost about $310 billion of market value this year.

"There is a realization that the global growth is not moving as quickly as expected," said Ernie Cecilia, chief investment officer of Bryn Mawr Trust.

"The market tends to over react in either direction and needs to find a stable level before this rout can be stemmed. There is a lot of liquidity left and at some point investors will look at lowered valuations and step in."

The dollar index was down 1.6 percent. It (Other OTC: ITGL - news) fell more than 2 percent eerier in the day to a 7-month low as the probability of a September rate hike receded.

Traders now see a 24 percent chance that the Fed will increase rates in September, down from 30 percent late on Friday and 46 percent a week earlier, according to Tullett Prebon (LSE: TLPR.L - news) data.

Wall Street's selloff last week showed investors are becoming increasingly nervous about paying high prices for stocks at a time of minimal earnings growth, tumbling energy prices, and an expected rate hike by the U.S. Federal Reserve.

Alibaba fell 4.1 percent to $65.39, well below its IPO price of $68, making it the second high-profile tech company to fall below its IPO price in the past week after Twitter (Swiss: TWTR.SW - news) on Thursday.

Declining issues outnumbered advancing ones on the NYSE by 3,017 to 117. On the Nasdaq, 2,536 issues fell and 272 advanced. (Reporting by Tanya Agrawal; Editing by Ted Kerr and Saumyadeb Chakrabarty)