* Chinese shares post biggest drop in eight years
* Oil prices, commodities lower following China market rout
* Dow hits lowest level in five months
* Teva, Allergan jump after $40.5 bln deal
* Indexes down: Dow 0.66 pct, S&P 0.44 pct, Nasdaq 0.77 pct (Adds details, updates prices)
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.
China's top securities regulator, China Securities Regulatory Commission, said on Monday that Beijing would continue to buy shares to stabilize the stock market.
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.
Traders and investors said the rout was rooted in broader concerns over global growth midway through the corporate results season and a poor economic reading out of China late last week.
"You still have a lot of shares that aren't allowed to be traded and a lot of things going on that is not allowing that (China) market to trade in a free, open and organic way," said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin, Texas.
"I don't think the market is going to stabilize unless the restrictions are lifted."
At 12:24 p.m. ET the Dow Jones industrial average was down 115.38 points, or 0.66 percent, at 17,453.15, the S&P 500 was down 9.07 points, or 0.44 percent, at 2,070.58 and the Nasdaq Composite was down 39.42 points, or 0.77 percent, at 5,049.22.
Eight of the 10 major S&P 500 sectors were lower with the technology index's 0.74 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 51 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.
"Valuations are a concerns right now and if we are going to see a sustained rally we really need to see corporate revenue growth and we really haven't seen that," said Frederick.
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.
Teva Pharmaceutical's shares jumped as much as 13.3 percent to a record high of $70.06 after it agreed to buy Allergan generic drugs business for $40.5 billion, giving up on its bid to buy Mylan. Allergan was up 6.8 percent at $329.21 while Mylan fell 13.2 percent to $57.18.
Fiat Chrysler fell 4 percent at $14.53 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.
Declining issues outnumbered advancing ones on the NYSE by 2,055 to 923. On the Nasdaq, 1,915 issues fell and 802 advanced.
The S&P 500 index showed one new 52-week highs and 55 new lows, while the Nasdaq recorded 17 new highs and 206 new lows.
The NYSE showed the most number of new lows in a day since October 15. (Editing by Don Sebastian)