The Dow Jones industrial average dropped more than 2 per cent, or more than 240 points, in late trading as stocks sold off sharply on worries about accelerating inflation and higher interest rates.
This is the Dow's biggest single-day percentage drop since May 19th, 2003.
The Dow Jones industrial average was down 244.46 points, or 2.14 per cent, at 11,175.43. The Standard & Poor's 500 Index was down 24.75 points, or 1.92 per cent, at 1,267.33. The Nasdaq Composite Index was down 35.26 points, or 1.58 per cent, at 2,193.87.
The Nasdaq erased its gains for the year and is now down 0.26 per cent
European shares suffered their biggest points fall since October 2002 today to close at over a three-month low as strong US inflation data sparked fresh fears over rising interest rates.
The session's slide wiped over €180 billion off the value of Europe's top 300 companies.
The FTSEurofirst 300 index of top European shares unofficially closed 2.6 per cent or 35 points weaker at 1,312.21 points. In Dublin the Iseq closed 1.5 per cent lower at 7,671.95.
"The market was due for a correction and I think it may take another few days for it to settle down a bit," said a trader.
The market had been trading flat before data showed headline US consumer prices rose by 0.6 per cent in April with core prices up an unexpectedly strong 0.3 per cent, fuelling worries the Federal Reserve will continue tightening monetary policy.
Economic data showing the pace of inflation quickened in April raised expectations that the Federal Reserve will raise interest rates longer than expected.
"There is concern that interest rates will continue to move higher and that higher energy prices will deteriorate consumers' discretionary income spending," said Scott Fullman, director of investment strategy at Hapoalim Securities.