* Chinese shares post biggest drop in eight years
* Oil prices, commodities lower following China market rout
* Teva, Allergan jump after $40.5 bln deal
* Indexes down: Dow 0.91 pct, S&P 0.75 pct, Nasdaq 0.95 pct (Updates to open)
By Tanya Agrawal
July 27 (Reuters) - Wall Street began the week in the red on Monday and fell sharply on concerns about China's slowing growth in the wake of the biggest drop in Shanghai shares in eight years.
The Dow Jones industrial average fell to its lowest level in over five months while the Nasdaq composite was at a four-week low and the S&P 500 touched its lowest in more than two weeks.
Chinese shares tumbled more than 8 percent as an unprecedented government rescue plan to prop up valuations abruptly ran out of steam, raising doubts about the viability of Beijing's efforts to stave off a deeper crash.
Commodity prices resumed their downward spiral with the broader Thomson Reuters CRB commodities index hitting its lowest in six years and oil prices hitting a four-month low.
Chinese ADRs including Alibaba, Baozun, Sohu.com and JD.com slid.
The S&P 500 and Nasdaq posted their largest weekly drops since March on Friday as slowing global growth dragged commodity-related stocks lower.
"This really has its roots in nervousness that began in the U.S. at the end of last week," said Andy Sullivan, a portfolio manager with Swiss investment firm GL Financial Group.
"Shanghai is an artificial market at the moment reliant on government support, and they have thrown the kitchen sink at it in recent weeks. The selling just ratcheted up steadily this morning."
At 9:44 a.m. ET (1344 GMT), the Dow Jones industrial average was down 159.41 points, or 0.91 percent, at 17,409.12, the S&P 500 was down 15.54 points, or 0.75 percent, at 2,064.11 and the Nasdaq composite was down 48.47 points, or 0.95 percent, at 5,040.16.
Apple's 1.3 percent fall weighed the most on the S&P and the Nasdaq while the Dow was dragged down by Goldman Sachs' 1.7 percent drop.
Nine of the 10 major S&P 500 sectors were lower with the energy index's 1.57 percent fall leading the decliners.
Earnings season continues with big oil, social media stocks and pharma companies scheduled to report this week.
Second-quarter S&P 500 earnings have been mixed, with 74 percent of companies beating analysts' profit expectations but just 52 percent surpassing revenue expectations, according to Thomson Reuters data.
Adding to the concerns regarding lukewarm earnings, the S&P 500 is relatively expensive, trading at 16.9 times forward 12 months' earnings, above the 10-year median of 14.7 times, according to StarMine data with only a handful of stocks fuelling recent highs.
Investors are also keeping a sharp eye on economic data ahead of this week's U.S. Federal Reserve's two-day meeting, the last before September, which still looms as the first possibility for an interest rate increase.
A gauge of U.S. business investment plans rebounded solidly in June, suggesting the drag on manufacturing from capital spending cuts was starting to ebb.
The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.9 percent last month after an unrevised 0.4 percent drop in May.
Teva Pharmaceutical's shares jumped 10.7 percent to $68.6 after it agreed to buy Allergan generic drugs business for $40.5 billion, giving up on its bid to buy Mylan . Allergan was up 5.8 percent at $325.21 while Mylan fell 13.9 percent to $56.75.
Fiat Chrysler fell 5.5 percent at $14.32 after the U.S. auto safety watchdog, National Highway Traffic Safety Administration, announced a $105 million fine against the automaker over lapses in its safety recalls.
Beacon Roofing Supply was up 11.4 percent at $33.52 after the company agreed to buy Roofing Supply Group in a deal valued at about $1.1 billion.
Declining issues outnumbered advancing ones on the NYSE by 2,150 to 598. On the Nasdaq, 1,956 issues fell and 449 advanced.
The S&P 500 index showed one new 52-week high and 53 new lows, while the Nasdaq recorded 9 new highs and 141 new lows. (Editing by Don Sebastian)