According to preliminary calculations, the Dow Jones Industrial Average fell 513 points, or 4.3%, to 11,384, the S&P 500 tumbled 60.2 points, or 4.8%, to 1,200 and the Nasdaq Composite slid 137 points, or 5.1%, to 2,556. The FOX 50 tumbled 37.5 points, or 4.2%, to 864.
Tension on Wall Street was extremely high on Thursday. Traders piled up into Treasury bonds, seen as one of the safest non-cash assets during tumultuous times. Indeed, Treasury yields on 10-year Treasury securities dipped well below 2.5% -- the lowest since November.
"The mood is pervasively negative," said Peter Kenny, managing director at Knight Capital Group. "It would take quite the imagination to come up with a silver bullet" to re-instill confidence in the economy.
The VIX, sometimes referred to as a gauge of fear, spiked 36%. The Dow, S&P 500 and the Nasdaq all plunged into correction territory and into the red for the year.
U.S. incomes fell sharply in 2009 - David Cay Johnston
U.S. incomes plummeted again in 2009, with total income down 15.2 percent in real terms since 2007, new tax data showed on Wednesday.
The data showed an alarming drop in the number of taxpayers reporting any earnings from a job -- down by nearly 4.2 million from 2007 -- meaning every 33rd household that had work in 2007 had no work in 2009.
Average income in 2009 fell to $54,283, down $3,516, or 6.1 percent in real terms compared with 2008, the first Internal Revenue Service analysis of 2009 tax returns showed. Compared with 2007, average income was down $8,588 or 13.7 percent.
Average income in 2009 was at its lowest level since 1997 when it was $54,265 in 2009 dollars, just $18 less than in 2009. The data come from annual Statistics of Income tables that were updated Wednesday.
Analysis: Obama, Bernanke out of ammo to boost jobs, growth - Alister Bull
"It seems we've thrown everything at it. We've had QE1 and QE2, Stimulus 1 and Stimulus 2, and the unemployment rate is still 9.2 percent," said John Makin, an economist at the American Enterprise Institute in Washington. "Maybe there are just not many options here at this point," he said.
World stock markets shuddered after disappointing U.S. growth and manufacturing numbers and investors rushed to buy long-dated U.S. Treasury bonds in a move that suggests deep concerns about the economic outlook.
Data on Friday is expected to confirm the U.S. unemployment rate remained stuck at 9.2 percent in July.
Lawrence Summers, a top Obama adviser until last year, wrote in a Reuters column on Tuesday the odds of another U.S. recession were 1 in 3. Goldman Sachs has said a slight tick up in the unemployment rate could provide a strong recession signal.
US borrowing tops 100% of GDP: Treasury - AFP
US debt shot up $238 billion to reach 100 percent of gross domestic project after the government's debt ceiling was lifted, Treasury figures showed Wednesday.
Treasury borrowing jumped Tuesday, the data showed, immediately after President Barack Obama signed into law an increase in the debt ceiling as the country's spending commitments reached a breaking point and it threatened to default on its debt.
The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.
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The last time US debt topped the size of its annual economy was in 1947 just after World War II. By 1981 it had fallen to 32.5 percent.
Ratings agencies have warned the country to reduce its debt-to-GDP ratio quickly or facing losing its coveted AAA debt rating.
Moody's said Tuesday that the government needed to stabilize the ratio at 73 percent by 2015 "to ensure that the long-run fiscal trajectory remains compatible with a AAA rating."
