Wall Street stocks tumbled in heavy trading on Monday as jittery investors responded to Standard & Poor's decision to cut the United States credit rating on Friday.
The Dow Jones industrial average dropped 634.76 points, or 5.55%, to end at 10,809.85.
Standard & Poor's 500 index sank 79.92 points, or 6.66% , to finish at 1,119.46. Every stock on the S&P 500 ended in negative territory.
The Nasdaq Composite Index lost 174.72 points, or 6.90%, to close at 2,357.69.
There are now growing fears the US may be heading for a double-dip recession.
Investors sought safety in gold and US government bonds, which are still rated highly by the markets despite the downgrade of the US credit rating from AAA to AA+ by S&P.
Deep concerns are held about the American economy and the European debt crisis.
The BBC reports major markets in Europe also lost ground late on Monday.
Share prices in London, Paris and Frankfurt were all down.
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The FTSE ended down 3.39% at 5,069, its lowest close since July 2010.
The DAX in Frankfurt was down 5.02% at 5,923 and the CAC-40 was down 4.68% at 3125.
However, yields on Spanish and Italian bonds fell sharply after intervention by the European Central Bank.
The announcement saw the yield on Spanish 10-year bonds fall from more than 6% to about 5.2%. Yields on Italian bonds fell by a similar amount.
Fears of a renewed global slowdown were also reflected in the price of gold and oil.
Gold, which is seen as a safe investment in times of economic uncertainty, jumped to a new record high of $US1,697 per ounce.
Meanwhile the price of oil slipped further. US light crude fell 3% to $US84.23 per barrel, while Brent crude lost 2.6% to $US106.54.
The Australian 200 Index fell 119 points, or 2.9%, to close at 3986 on Monday.