But by midmorning, major indexes had halved their losses, as investors snapped up beaten-down retailers, home builders and financial services companies after the Federal Reserve cut interest rates by 75 basis points in a surprise intermeeting decision.
The move from the U.S. central bank followed steep losses in global equities on worries a deteriorating U.S. economy would drag other regions down with it.
Within minutes of the opening bell, the Nasdaq dropped to a level indicating it has crossed the threshold of what is considered a bear market, or down 20 percent from its October peak close.
The Dow Jones industrial average was down 185.91 points, or 1.54 percent, at 11,913.39. The Standard & Poor's 500 Index was down 22.68 points, or 1.71 percent, at 1,302.51. The Nasdaq Composite Index was down 57.72 points, or 2.47 percent, at 2,282.30.
The Fed's action took the key federal funds rate, which governs overnight lending between banks down to 3.5 percent, its lowest level since September 2005. The Fed also lowered the discount rate it charges on direct loans to banks to 4 percent.
The S&P index of retailers rose 2 percent, the Dow Jones home construction index rose rose 2.9 percent and the S&P financials index rose 1.5 percent.
Exxon Mobil lost 2.7 percent to $82.82 as the price of oil slid. Shares of iPod and iPhone maker Apple Inc were the biggest drag on the Nasdaq, down 3.3 percent to $156.10.