US stocks suffered a brutal sell-off Thursday fuelled by the Federal Reserve's stark warning about the health of the US economy.
The Dow Jones Industrial Average ended the day down 391.01 points (3.51 per cent) at 10,733.83.
The broader S&P 500 sank 37.20 points (3.19 per cent) to 1,129.56, while the tech-heavy Nasdaq Composite slumped 82.52 points (3.25 per cent) to 2,455.67.
The drops were part of a global selloff.
Earlier, stocks in Europe and Asia sank after the Fed warned of "significant downside risks to the economic outlook" in the United States amid high unemployment, slow growth and a depressed housing market.
The warning overshadowed the Fed's announcement of a plan, dubbed "Operation Twist", to shift $US400 billion in its shorter-term debt portfolio holdings to longer-term bonds in a bid to reduce long-term interest rates.
"The obvious conclusion appeared to be that investors see little potential impact from the Fed's action on near-term economic growth," said Frederic Dickson, chief market strategist for DA Davidson & Co.
Meanwhile, the bleak warning that came out alongside the Fed's policy move "cast more doubt about the ability of the economy to resume normal growth anytime soon," Dickson added.
All of the Dow's 30 blue-chip stocks were in the red, with industrials among the worst performers.
United Technologies plunged 8.8 per cent, a day after it reached a deal to buy aerospace maker Goodrich for $US18.4 billion, including $US1.9 billion in assumed debt.
Caterpillar sank 6.9 per cent, aluminum giant Alcoa was down 6.9 per cent and chemicals firm DuPont dropped 6.6 per cent.
Delivery firm Fedex, considered a barometer of the US economy, plunged 8.2 per cent after it lowered its earnings forecasts for 2012, even as it reported that its last quarterly profits beat expectations.
Downbeat economic data from China and the eurozone also weighed on global market sentiment.
A preliminary manufacturing report from HSBC showed that activity in China had slowed for the third straight month in September.
Separately, a survey by London-based researchers Markit showed that economic activity in the eurozone hit reverse in September for the first time in more than two years.
The US Labor Department said new initial jobless claims dropped last week, but remained at the painfully high level of 423,000, reflecting the persistent weakness of the US job market.
Bond prices surged as investors flocked to the safety of US government debt, with the yield on the 10-year Treasury note sinking to a new record low.
The 10-year yield stood below 1.72 per cent by ,2030 GMT (0630 Friday AEST) down from 1.88 per cent on Wednesday, while the yield on the 30-year bond was down to 2.80 per cent from 3.04 per cent the previous day.
Bond prices and yields move in opposite directions.
