The year got off to a shaky start after weak data from China triggered declines in global markets, with the Dow recording its worst first day of the year in seven years, and oil prices weakened further.
The People's Bank of China on Wednesday stepped in to weaken the yuan further, raising fears that the country's economy was even weaker than had been expected.
Adding to investors' nervousness regarding the worsening geopolitical condition, North Korea said it had successfully tested a hydrogen bomb.
Investors are also concerned over the pace of interest rate hikes in the United States and stretched valuations of companies at a time when the outlook for earnings growth looks bleak.
Despite the steep fall in the stock market, the S&P is still trading at 15.8 times forward earnings, compared with its 10-year median of 14.7, according to Thomson Reuters StarMine.
For the fourth quarter of 2015, 91 S&P 500 companies have issued profit warnings compared with 30 positive pre-announcements, according to Thomson Reuters data.
Market favorites such as Netflix, Amazon and Verisign, among others, have all fallen more than 5 per cent since the start of trading this year, mainly due to profit taking in a dour market.
Federal Reserve Vice Chair Stanley Fischer told CNBC the US central bank did not know enough at the moment to comment on how many hikes there would be in 2016 but that four hikes were "in the ballpark" in his view.
"People are concerned that the Fed missed a window of opportunity last year and will raise rates at a time when the economy is slowing down," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
Investors will get a clearer picture into the Fed's thinking when the central bank releases minutes from its December 15-16 meeting, where it raised interest rates for the first time in nearly a decade.
At 1551 GMT (9:21 p.m. in India), the Dow Jones industrial average was down 228.97 points, or 1.33 per cent, at 16,929.69, the S&P 500 was down 24.13 points, or 1.2 per cent, at 1,992.58 and the Nasdaq Composite was down 46.98 points, or 0.96 per cent, at 4,844.45.
All the 10 major S&P 500 sectors were lower, with the energy index's 3.33 per cent fall leading the decliners. Oil prices, which fell more than 35 percent in 2015, slid a further 4 per cent to 11-year lows.
Shares of oil majors Exxon and Chevron were down over 2 per cent and weighed the most on the sector.
Data showed that private employers added 257,000 jobs, far ahead of the 192,000 increase expected by economists polled by Reuters. The data comes ahead of a more comprehensive non-farm payroll report on Friday.
Apple was down 1.4 per cent at $101.31, a day after the Nikkei reported that the company is expected to cut production of its latest iPhone models due to mounting inventories.
Declining issues outnumbered advancing ones on the NYSE by 2,303 to 610. On the Nasdaq, 1,909 issues fell and 698 advanced.
The S&P 500 index showed no new 52-week highs and 30 new lows, while the Nasdaq recorded 12 new highs and 84 new lows.
© Thomson Reuters 2016