Airline stocks fell sharply on concerns the disease could curb air travel, with several numbering among the biggest decliners on the S&P 500. Delta Air Lines lost 3.5 per cent to $34.90 while Southwest Airlines was off 2.8 per cent at $32.83. The NYSE Arca Airline index fell 2.1 per cent.
"African travel isn't a huge part of the travel industry, but it does seem like some parts of the industry are likely to be disrupted from this," said Mitch Rubin, chief investment officer at RiverPark Advisors in New York.
The news overshadowed a positive reading on the labor market, but the S&P 500 appeared to find support at its 100-day moving average, a level it has not closed below since August 7.
"A global healthcare crisis is a reason to be very focused on your short-term capital needs, especially when valuations aren't hugely attractive to begin with," said Mr Rubin, who oversees about $3.7 billion in assets.
Drug companies with Ebola treatments in their pipelines rallied in heavy trading. US shares of Tekmira Pharmaceuticals jumped 17 per cent to $24.91 and was the Nasdaq's most active name. Sarepta Therapeutics rose 4.8 per cent to $22.11 while BioCryst Pharmaceuticals added 4.7 per cent to $10.23.
All three were well off their premarket highs after Texas health officials - where the diagnosis was made - wrote on Twitter that they had no other suspected cases at this time.
Lakeland Industries Inc, which makes protective clothing for healthcare workers and first responders, rose 9.4 per cent to $7.60.
In a positive reading on the economy, a report showed private employers added 213,000 jobs in September, more than expected, although August's number was revised down by 2,000 jobs. The stronger-than-expected September data could raise expectations for the closely watched non-farm payroll report released on Friday.
The Dow Jones industrial average fell 124.2 points, or 0.73 per cent, to 16,918.7.
The S&P 500 lost 14.12 points, or 0.72 per cent, to 1,958.17.
The Nasdaq Composite dropped 37.79 points, or 0.84 per cent, to 4,455.60.
Declining issues were outnumbering advancing ones on the NYSE by 1,978 to 781, for a 2.53-to-1 ratio on the downside; on the Nasdaq, 1,786 issues were falling and 470 advancing for a 3.80-to-1 ratio favoring decliners.
The benchmark S&P 500 index was posting no new 52-week highs and 15 new lows; the Nasdaq Composite was recording 4 new highs and 106 new lows.
Copyright @ Thomson Reuters 2014