The Dow Jones Industrial Average plummeted 443.16 points (4.85 per cent) to close at 8,696.11, nearly matching a 486-point slide on Wednesday.
The Nasdaq slumped 72.94 points (4.34 per cent) to 1,608.70 and the Standard & Poor's 500 index lost 47.89 points (5.03 per cent) to 904.88.
'The Street continues to fret about the health of the economy,' analysts at Charles Schwab & Co said in a market update note, citing weak forecasts from companies including tech giant Cisco Systems.
'A plethora of troubled corporate outlooks, and uncertainty as to how the incoming administration may respond to try to stabilise the economy, are exacerbating sentiment.'
Market action came amid heavy selling in other markets after an unprecedented British interest rate cut and a more modest euro zone reduction, which analysts said suggested more signs of danger ahead.
Normally, a reduction in borrowing rates would be a strong buy signal but markets were suspicious about the need for such drastic action, especially in Britain, believing the economy must be seriously at risk.
The Bank of England slashed its key lending rate by a record 1.5 percentage points to 3.0 per cent while the European Central Bank cut its main lending rate by half a percentage point to 3.25 per cent.
'Euro zone data and survey evidence have been dismal,' said Mr Howard Archer at IHS Global Insight.
'It is apparent that the heightened financial crisis is having a serious dampening impact on already struggling euro zone economies and is significantly intensifying the danger of deep, extended recession.'
Meanwhile, a report from the International Monetary Fund warned of a contraction in advanced economies in 2009 for the first time since World War II and said the US economy would shrink 0.7 per cent.
The markets have given back the gains from big rally ahead of the US presidential election won by Democrat Barack Obama on Tuesday.
'The afterglow following the presidential election lasted about as long as the firefly's flash on a summer evening, which is to say it wasn't long at all,' said Mr Patrick O'Hare at Briefing.com. 'Wall Street wasted little time turning its attention back to a slumping economy.'
Wall Street was also bracing for Friday's report on US payrolls, expected to show a loss of 200,000 jobs amid weak economic momentum.
'The expected weak October employment report will be released tomorrow and provide another test for the market,' said Mr Al Goldman at Wachovia Securities.
Investors must develop confidence in Mr Obama and the new Congress, he said, adding, 'this will take time.' Among key stocks, Cisco Systems fell 2.59 per cent to US$16.94 (S$25.47) after warning that the economic crisis may cut into sales by 10 to 15 per cent.
News Corp, the media giant controlled by Mr Rupert Murdoch, fell 16.3 per cent to US$8.31 after warning of weaker results ahead.
Wal-Mart limited its loss to 1.18 per cent to US$53.49 after the world's biggest retailer said sales are holding up.
In the banking sector, Wells Fargo dropped 9.19 per cent to US$28.77 after announcing it would raise US$10 billion in new capital to help it absorb rival bank Wachovia.
Bonds fell. The yield on the 10-year US Treasury bond increased to 3.707 per cent from 3.694 per cent on Wednesday and that on the 30-year bond rose to 4.200 per cent against 4.154 per cent. Bond yields and prices move in opposite directons. -- AFP