Wall Street slumped overnight, with tech stocks selling off, as investors were increasingly concerned about the continued impasse between US lawmakers over the budget and debt ceiling.
Shares of Alcoa fell 0.7 per cent. The aluminium producer is scheduled to release third-quarter results after the market close as the latest round of quarter US earnings gets underway.
"All of the sudden, you've got these question marks coming in from earnings reports and the government shutdown and you've got these portfolio managers saying, 'What is left here for me to keep my neck out? Why not take some profit?'" Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta, told Reuters.
In afternoon trading in New York, the Dow Jones Industrial Average shed 0.60 per cent, the Standard & Poor's 500 Index dropped 0.88 per cent, and the Nasdaq Composite Index sank 1.7 per cent.
Shares of Verizon Communications and AT&T led the Dow lower, falling 2.2 per cent and 1.9 per cent respectively.
The CBOE Volatility index, Wall Street's so-called "fear gauge", rose 4.6 per cent to 20.31.
"The market is going to start to push the government," Rick Fier, director of equity trading at Conifer Securities in New York, told Bloomberg News.
"The longer it drags on, the more uncomfortable everyone gets because we will not rally until something gets done. Get out now and wait for the storm to pass to get back in."
The US Treasury sold US$30 billion of one-month bills today at a rate of 0.35 per cent, the highest since 2008.
"This uncertainty in Washington is causing troubles in the market, mostly in the front end, on whether issues maturing around that time will be paid off," Ray Remy, head of fixed income in New York at Daiwa Capital Markets America, one of 21 primary dealers obligated to bid at Treasury auctions, told Bloomberg News.
Meanwhile, the International Monetary Fund downgraded its forecasts, predicting in its latest World Economic Outlook report that global output will grow 2.9 per cent in 2013 and 3.6 per cent next year, down from its July estimates for 3.1 per cent and 3.8 per cent respectively.
"Downside risks, old and new, still dominate the outlook," the IMF said in the report. "Although imminent tail risks in advanced economies have diminished, additional measures will be needed to keep them at bay, including timely increases in the US debt ceiling and continued 'do what it takes' action by the euro area authorities to avoid a sharp deterioration in financial conditions."
"In contrast, risks of a longer growth slowdown in emerging market economies have now increased, due to protracted effects of domestic capacity constraints, slowing credit growth, and weak external conditions," according to the IMF.
In Europe, the Stoxx 600 Index fell 0.8 per cent from the previous close. Germany's DAX fell 0.4 per cent, France's CAC 40 weakened 0.8 per cent, and the UK's FTSE 100 retreated 1.1 per cent.