Stocks on major world markets slid to a three-month low on Wednesday, with the benchmark S&P500 stock index falling more than 3.0 per cent, its biggest one-day fall since February.
Technology shares tumbled on fears of slowing demand, while bond yields ended lower after seeing multi-year highs earlier this week.
Major equity indexes in Europe fell more than 1.0 per cent, also pulled down by technology shares, and gold prices inched up as some investors sought refuge in the metal.
"The S&P 500 is looking very weak and negative and that is putting fear into investors," said Michael Matousek, head trader at U.S. Global Investors. "With the markets going down people are increasing their allocation towards gold."
On Wall Street, the Philadelphia Semiconductor index tumbled 4.46 per cent after Swiss vacuum valve maker VAT Group said demand was softening from chip equipment makers.
Among the tech sector's worst performers in Europe, Austrian chipmaker AMS fell 5.9 per cent and STMicroelectronics closed down 5.8 per cent.
Benchmark U.S. 10-year Treasury notes rose late in the day, pushing yields down to 3.1931 per cent. Yields on 3-year notes have recently traded just above 3.0 per cent, providing long-absent competition for investment returns with equities.
The rise in U.S. Treasury yields has been bolstered by good U.S. economic data that has reinforced expectations of multiple rate hikes over the next 12 months by the Federal Reserve.
Stocks and bonds traditionally have been in a tug of war for capital, but for the past 10 years bonds have had one arm tied behind their back, said Jack Ablin, chief investment officer and founding partner at Cresset Wealth Advisors in Chicago.
"Short-term bonds are getting to be a compelling place to hang out," he said. "This orphan status that equity markets have enjoyed for the last 10 years is disappearing and finally getting some competition from the bond market."
The Dow Jones Industrial Average fell 831.83 points, or 2.2 per cent, to 25,598.74. The S&P 500 lost 94.66 points, or 3.29 per cent, to 2,785.68 and the Nasdaq Composite dropped 315.97 points, or 4.08 per cent, to 7,422.05.
MSCI's gauge of stocks across the globe fell per cent, its biggest single-day fall since February. The pan-European FTSEurofirst 300 index of leading regional shares closed down 1.57 per cent.
The euro and sterling rose, underpinned by optimism for a Brexit deal, while the U.S. dollar lost ground against a basket of currencies even as U.S. yields hovered near multiyear peaks.
European Union Brexit negotiator Michel Barnier signalled progress on a deal with the UK over its withdrawal from the bloc.
"There is more optimism that they will find some agreement between Britain and the European Union before Brexit," said Steve Englander, global head of G10 FX research at Standard Chartered Bank in New York.
The dollar index fell 0.17 per cent, with the euro up 0.25 per cent to $1.1518. The Japanese yen strengthened 0.53 per cent versus the greenback at 112.36.
Oil prices fell more than 2 per cent as U.S. stocks plunged, even though energy traders worried about shrinking supply from Iran due to U.S. sanctions and kept an eye on Hurricane Michael, which closed nearly 40 per cent of U.S. Gulf of Mexico output.
U.S. crude settled down $1.79 at $73.17 per barrel and Brent fell $1.91 to settle at $83.09.
U.S. gold futures settled up $1.9, or 0.16 per cent, at $1,193.4.