Worries about the upcoming corporate earnings season also weighed on the market.

The blue chip Dow Jones Industrial Average sank 161.42 points (1.94 per cent) to 8,163.45 at the closing bell.

The tech-heavy Nasdaq composite dropped 41.23 points (2.31 per cent) to 1,746.17 while the Standard & Poor's 500 broad-market index shed 17.70 points (1.97 per cent) to a preliminary close of 881.02.

The mood was soured early by comments from Laura Tyson, an economic adviser to President Barack Obama.

At a Singapore conference she said that the United States might need a second stimulus package focusing on infrastructure projects.

Andrew Busch at BMO Capital Markets said the remarks stoked fears that a recovery from recession remained distant and that the first stimulus of US$787 billion (S$1.18 trillion) may not be working.

The comments appeared to confirm 'that that the Obama administration didn't realise the economy was as bad as it was when they took office,' Mr Busch said.

'She's advocating expanding the fiscal deficit beyond it's current distended fiscal bloat,' the analyst added.

'If that comment by Tyson wasn't disturbing enough, she went on to say that the US dollar ought to decline in the longer-term on a trade weighted basis,' which could hurt investment in dollar-based assets, he said. -- AFP