Share prices fell sharply near the close after holding steady for most of the session, despite another panicky sell-off in south-east Asia.
The Dow Jones industrial average sank 127.54 points - or 1.63 per cent - to 7,691.77, with most of the damage coming in the last hour of trading.
Broad-market indicators were also hit hard late in the session as investors opted for a defensive stance before the holidays.
Declining issues outnumbered advancers by an 8-to-7 margin on the New York Stock Exchange, with 1,372 up, 1,570 down and 525 unchanged.
NYSE volume totalled 513.93 million shares, compared with 530.09 million in the previous session.
The Standard and Poor's 500stock list fell 14.59 to 939.11, and the NYSE composite index fell 5.63 to 494.85.
The Nasdaq composite index fell 22.15 to 1,509.91, and the American Stock Exchange composite index fell 2.55 to 660.52.
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