Wall Street dropped on disappointing earnings from companies including Morgan Stanley and eBay as well as the latest economic indicators suggesting a slowdown in the pace of the recovery.
Shares of Morgan Stanley and eBay fell, last down 4.7 per cent and 5.4 per cent respectively, as they posted results that fell short of expectations. So did UnitedHealth Group, sending its shares 3.7 per cent lower.
Google is set to report results after the closing bell.
The latest economic data were not encouraging either. The Philadelphia Federal Reserve Bank's business activity index fell to 1.3 in April from 2.0 in March. The Conference Board's index of leading indicators posted a surprise drop, declining 0.1 per cent in March. Initial claims for state unemployment benefits climbed 4,000 to a seasonally adjusted 352,000, the Labor Department said.
"The evidence is mounting that the economy lost momentum in March and that has carried to April," Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, told Reuters.
In afternoon trading in New York, the Dow Jones Industrial Average fell 0.55 per cent, the Standard & Poor's 500 Index declined 0.61 per cent, while the Nasdaq Composite Index shed 1.27 per cent.
"We've come to a period of negative economic surprises," Mark Luschini, the chief investment strategist at Janey Montgomery Scott, told Bloomberg News. "Whether it's a pullback or a corrective phase, I think it'll just be a pause because I don't think the fundamental underpinnings are deteriorating more."
In this subdued economic environment, price increases are hardly a concern. That was clearly reflected in the level of demand for the US Treasury's US$18 billion auction of five-year TIPS, or Treasury Inflation Protected Securities.
The bid-to-cover ratio was 2.2, the least since October 2008, and drew a yield of negative 1.311 per cent versus a forecast of negative 1.384 per cent according to Bloomberg.
Shares of Apple extended their slide, last 2.9 per cent weaker at US$391.21, amid concern about slowing demand for its iPhone.
It was not all bad news however. Investors welcomed results by Verizon Communications and PepsiCo, pushing their shares up 3.2 per cent and 2.8 per cent respectively.
In Europe, the Stoxx 600 Index closed at 283.73, unchanged from the previous close and erasing an earlier gain of as much as 0.7 per cent, according to Bloomberg.
Germany's DAX Index fell 0.4 per cent, while national benchmark stock indexes in Paris and London closed little changed from the previous session.