The Dow Jones Industrial Average sank to a fresh five-and-a-half year low, losing 444.99 points (5.56 per cent) to 7,552.29 after the closing bell.
The Nasdaq lost 70.30 points (5.07 per cent) to 1,316.12 and the Standard & Poor's 500 plummeted 54.14 points (6.71 per cent) to a preliminary close of 752.44, the lowest finish since April 1997.
The market wobbled most of the day and a sell-off accelerated as Democrats in Congress put off a vote on a bailout for crisis-hit 'Big Three' automakers until at least December, and told industry chiefs to come up with a new rescue pitch.
The news dimmed prospects for a key sector with the overall economy facing dire problems and unemployment rising.
The latest economic news remained grim as the US Labour Department said new claims for unemployment benefits in the past week jumped to a 16-year high of 542,000.
The Conference Board meanwhile reported that its forward-looking index of leading economic indicators declined 0.8 percent in October.
'The economy is contracting, and the pace of contraction may intensify over the next few months,' said Mr Ken Goldstein, economist at the business research firm. -- AFP