Wall Street sank amid disappointing jobs data and concern about chances the US Federal Reserve will ease back its stimulus measures.
"Overall economic activity increased at a modest to moderate pace," the Fed said in its Beige Book. "Hiring increased at a measured pace in several Districts, with some contacts noting difficulty finding qualified workers."
The Fed is looking for substantial improvement in the labour market before tapering its US$85 billion a month bond-buying program. Fed chief Ben Bernanke raised concern when he suggested a couple of weeks ago that the pace could be adjusted in the next few months.
The next FOMC meeting begins on June 18.
Meanwhile, private employers added 135,000 jobs in May, according to the ADP National Employment Report. That was short of expectations. April's private payrolls were revised down to a gain of 113,000.
"We have been seeing significant differences in ADP and nonfarm payrolls for months but regardless, it still doesn't suggest that the labour market is strong enough for the Fed to start tapering," Andrew Wilkinson, chief economic strategist at Miller Tabak & Co, told Reuters.
The US government's monthly jobs report, due Friday, is expected to show total employment, including government workers, rose by 165,000 in May, according to the median estimate of 86 economists in a Bloomberg survey. That's the same as the gain in April.
In late afternoon trading in New York, the Dow Jones Industrial Average shed 1.25 per cent, the Standard & Poor's 500 Index sank 1.31 per cent and the Nasdaq Composite fell 1.22 per cent.
"I think we're at the point where there hasn't been a lot of good news, and the level of concern over the Fed's next action is kind of overwhelming," Fred Dickson, chief market strategist at DA Davidson & Co in Lake Oswego, Oregon, told Reuters. "The pullback that started a couple of weeks ago with Bernanke's comments has picked up momentum."
US Treasuries benefited. The yield on the 10-year bond fell 5 basis points to 2.09 per cent.
It wasn't all bad news. The Institute for Supply Management's services index rose to a better-than-expected 53.7 in May, from 53.1 in April.
Europe's benchmark Stoxx 600 Index finished the day 1.5 per cent weaker from the previous close. Germany's DAX fell 1.2 per cent, France's CAC 40 dropped 1.9 per cent, while the UK's FTSE 100 retreated 2.1 per cent.
Part of the impetus for the global selling was the release of a text of a speech by Japan's Prime Minister Shinzo Abe outlining plans to bolster growth. The plans though failed to meet expectations. Abe is to detail his initiatives next week.