Wall Street and oil slide

Trader Ryan Falvey, centre, works on the floor of the New York Stock Exchange. File photo / AP

Wall Street tumbled, as did oil, after a report showing a drop in Germany's exports added to concern the euro-zone's engine economy is headed for a recession.

German exports sank 5.8 percent in August, the largest decline in more than five years. The report came hot on the heels of data showing the worst month for the country's industrial orders and output in more than five years.

"The economy seems to need a small miracle in September to avoid a recession in the third quarter," Carsten Brzeski, an economist at ING, told Reuters.

Meanwhile European Central Bank President Mario Draghi warned that "without reform, there can be no recovery" in the euro-zone economy and underpinned concern about the region's inflation.

"We are accountable to the European people for delivering price stability, which today means lifting inflation from its excessively low level. And we will do exactly that," Draghi said in opening remarks at Brookings Institution in Washington.

In late afternoon trading in New York, the Dow Jones Industrial Average dropped 1.61 percent, the Standard & Poor's 500 Index sank 1.87 percent, while the Nasdaq Composite Index gave up 1.86 percent.

All 30 members of the Dow declined, led by slides in shares of Johnson & Johnson and those of Caterpillar, last down 2.6 percent and 2.5 percent respectively.

Shares of Chevron and Exxon Mobil slid, down 2.7 percent and 2.6 percent respectively, along with the price of oil.

Minutes from the September 16-17 Federal Open Market Committee meeting, released on Wednesday, showed US policy makers were increasingly concerned about the impact of weaker-than-expected economic growth abroad and a further strengthening of the US currency.

"The Fed's renewed focus on the dollar and the implications for the slowing global economy has become the focus of the market," Ian Lyngen, a government-bond strategist at CRT Capital Group in Stamford, Connecticut, told Bloomberg News.

St Louis Fed chief James Bullard said he believes there's a disconnect between the Fed's expectations for interest rates and those of investors.

"When there is a mismatch between what the central bank is thinking and the market is thinking, that sometimes doesn't end well, because there can be a surprise later on," he told reporters in Washington.

The latest sign of a sustained recovery in the US jobs markets came as a Labor Department report showed initial claims for state unemployment benefits unexpectedly fell, declining 1,000 to a seasonally adjusted 287,000 in the week ended October 4.

Shares of Gap plunged, last 12.2 percent lower, after a surprise announcement that Art Peck will replace Glenn Murphy as CEO on February 1.

"Glenn Murphy is very well respected, there's a lot of confidence in what he's done so far and his vision for the company," Betty Chen, a San Francisco-based analyst at Mizuho Securities, told Bloomberg News. "There's a little concern, even as they're handing off the reigns to a very experienced executive and an insider."

In Europe, the Stoxx 600 finished the session with a 0.4 percent decrease from the previous close. France's CAC 40 lost 0.6 percent, while the UK's FTSE 100 Index dropped 0.8 percent. Germany's DAX rose 0.1 percent.