US stocks slumped overnight as negative data from the US and China offered a bleak outlook on the global economic recovery.
The Dow Jones Industrial Average dropped 265.42 points (2.49 percent) to end at 10,378.83, posting its the worst percentage drop in nearly a month.
The tech-rich Nasdaq composite index slumped 68.54 points (3.01 percent) to 2,208.63 while the broader S&P 500 index fell 31.59 points (2.82 percent) at 1,089.47.
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Following most world markets, Wall Street shares nose dived Wednesday, a day after the Federal Reserve warned that the recovery of the world's biggest economy has been slowing.
The US plunge was led by technology stocks amid a looming slowdown in global PC sales.
Internet giant Google dropped by 2.38 percent, computer manufacturer Dell by 2.81 percent and computer chip titan Intel by 1.99 percent.
Cisco Systems tumbled 2.39 percent after revealing disappointing quarterly results.
The market appeared to dismiss better-than-expected earnings by entertainment giant Walt Disney and department store chain Macy's.
On Tuesday, Wall Street stocks recovered the bulk of their earlier losses after the Federal Reserve's policy-making body promised more stimulus spending to prop up the ailing US economy.
But data released Wednesday showing the US trade gap had widened sharply in June to the highest level in 20 months on the back of rising imports rekindled fears of a second-dip recession.
The 49.9-billion-dollar trade gap was larger than the 42.0 billion dollars posted in May and significantly exceeded economists' expectations that it would reach 42.2 billion dollars.
The disappointing data from Washington coupled with figures that suggested a slowdown in the Chinese economy compounded fears about the pace of the global recovery from the worst recession in decades.
Also on Wednesday, the Bank of England downgraded its economic outlook.
"The string of disappointing reports from overseas follows yesterday's Fed decision not to unwind stimulus measures in the face of a weakening recovery," said Wells Fargo's chief technical market strategist Scott Marcouiller
"This morning's US economic report reinforced worries about economic softness," he said in a note.
In London, the FTSE 100 index of leading shares closed down 2.44 percent at 5,245.21 points. In Paris, the CAC 40 tumbled 2.74 percent to 3,628.29 points and in Frankfurt the DAX lost 2.10 percent to 6,154.07 percent.
In the foreign exchange market, the dollar rose against the euro while the yen neared 15-year highs against the greenback as investors sought a safe haven in the face of renewed global economic jitters.
The bond market rose. The yield on the 10-year Treasury bond fell to 2.685 percent from 2.781 percent Tuesday while that on the 30-year bond was down to 3.921 percent from 4.030 percent. Bond yield and prices move in opposite directions.
