The S&P 500 extended declines in the final 15 minutes of trading and volume soared on Saturday because of a quarterly event known as quadruple witching, when futures and options contracts on indexes and individual stocks expire.
More than 12.5 billion shares changed hands across American exchanges, 71 per cent above the three-month average and the most since the height of the summer selloff in August.
"It's a sloppy market," said Bernie Williams, chief investment officer at San Antonio-based USAA Federal Savings Bank.
"The world economy is slowing and China has taken some of the oil demand off the table so you've seen a huge wipe out in commodity stocks. Investors are wondering if this is really indicative of slowing economy or if there is something deeper here."
The sell-off appeared tied to lower oil prices and the Fed's move, and not options expiration, said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin, Texas.
"The market is more sensitive to oil than anything else," Frederick said.
While last week's Fed rate decision removed a measure of uncertainty on financial markets and added to optimism that the world's largest economy is on firm footing, it did little to allay concern that global growth remains vulnerable to a slowdown in China and a related rout in commodities.
Oil continues to trade near levels last seen during the global financial crisis, stoking worry that junk-rated energy producers won't be able to remain solvent.
MSCI's all-country world stock index fell 1.28 per cent, while the FTSEurofirst 300 index of leading European shares closed down 1.05 per cent at 1419.35.
The Dow Jones industrial average lost 367.39 points, or 2.1 per cent, to 17,128.45. The S&P 500 fell 36.37 points, or 1.78 per cent, to 2005.52 and the Nasdaq Composite shed 79.47 points, or 1.59 per cent, to 4923.08.
The yen gained after the Bank of Japan merely tweaked its asset-purchase programme. The move halted the US dollar's ascent, fuelled in recent months by views that the Fed's likely decision to raise rates and the BoJ's path of more potential stimulus would drive investment into higher-yielding US assets.
"The BoJ's move shows a weak hand," said Jens Nordvig, global head of FX strategy at Nomura in New York.
"It suggests the BoJ is out of ammunition, and will not be able to deliver anything meaningful going forward."
Equities suffered from fatigue after markets rose in anticipation of the Fed move, while the slumping price of oil drove investor sentiment on concerns over global growth and a growing supply surplus.
"We had a couple of strong days as a result of the Fed," said Andrew Wilkinson, chief market strategist at Interactive Brokers in Greenwich, Connecticut.
"The market is getting sucked into a fear trade," he said. "It's really oil - is it a glut or a global slowdown? But I don't think it's symbolising a slowdown in the global economy."
Crude oil resumed its retreat following a rebound of almost 1 per cent after the US benchmark traded well below US$35 a barrel.
The reverse in prices came on news the US oil rig count rose for the first time in five weeks.
Seventeen rigs were added in the week ended on Saturday despite continued weak crude prices, which suggests no end in sight to the supply glut.
Global benchmark Brent crude fell US18c to settle at US$36.88 a barrel, while US crude futures settled down US22c at US$34.73 a barrel - the second straight day in almost seven years it closed below US$35.
The decline in crude and tumbling stock markets encouraged investors to seek the relative safety of US government debt. The slide in oil prices suggests inflation will remain benign.
- Bloomberg
