Stock markets tumbled worldwide as investors fled from equities, spooked by a sharp rise in US bond yields following data that showed US wages increasing at the fastest pace since 2009. This raised concerns over higher inflation and potentially higher interest rates.
Malaysian shares plunged as much as 3.1 percent, in their biggest intraday percentage drop since April 2013.
The benchmark palm oil contract for April delivery on the Bursa Malaysia Derivatives Exchange was down 0.3 percent at 2,481 ringgit ($633.39) a tonne at the midday break.
It had gained nearly 1 percent in the previous session, but had lost ground in the preceding two days.
Trading volumes stood at 21,276 lots of 25 tonnes each.
"The market is trading cautiously following broad-based weakness in financials and commodities around the globe," said a trader from Kuala Lumpur.
"Lingering weakness in the ringgit could, however, cushion selling activity."
Weakness in the ringgit, palm's currency of trade, supports the vegetable oil by making it cheaper for holders of foreign currencies.
The ringgit fell 0.4 percent against the dollar at 3.9130 around Tuesday noon, after having gained more than 3 percent since the start of the year.
Profit-taking also contributed to the decline, said another trader.
Palm oil looks neutral in a range of 2,481-2,520 ringgit per tonne, said Wang Tao, a Reuters market analyst for commodities and energy technicals.
In other related edible oils, the March soybean oil contract on the Chicago Board of Trade was up 0.25 percent, while the May soybean oil on the Dalian Commodity Exchange edged up 0.14 percent.
In other related edible oils, the Dalian May palm oil contract rose 0.87 percent.