By Agence France-Presse
"There are so many things the market is dealing with right now," said Tom Cahill of Ventura Wealth Management. "People are on edge and they're willing to sell first and ask questions later."
US stocks were in negative territory the whole day but shares fell much further at midday after Treasury Secretary Steven Mnuchin announced he was withdrawing from a big investment summit in Saudi Arabia, the most concrete sign the Trump administration is distancing itself from that Kingdom since Khashoggi's disappearance this month intensified scrutiny of the oil exporter.
Analysts said fresh questions about US relations with yet another major country were an unwelcome development at a time when the Trump administration's aggressive trade policies had already raised uncertainty.
"There's just heightened global tensions," said Jack Ablin, chief investment officer at Cresset Wealth Advisors. "Countries are moving apart rather than coming together."
At around the same time, European Central Bank Chief Mario Draghi reportedly told EU leaders at a Brussels summit that nations should adhere to the EU's budget rules -- comments that were seen as a swipe at Italy, which plans a steep increase in deficit spending.
The S&P 500 finished down 1.4 percent, while the Nasdaq slumped 2.1 percent following steep declines in giant tech companies such as Apple, Amazon and Netflix.
Earlier, stock markets in London, Paris and Frankfurt all fell amid worries over higher US interest rates as well, among other things.
Brexit talks end
Talks between British Prime Minister Theresa May and top EU officials in Brussels ended without any breakthroughs.
May said however that she might accept the EU's suggestion of extending the post-Brexit transition phase for a few months beyond December 2020 to allow more time to find a solution to the Irish border question that has hamstrung the talks.
Top British officials have warned of dire economic consequences if Britain cannot achieve a formal deal on the terms of its divorce from the EU.
Eurasia Group still views a Brexit deal as its base case outcome but boosted the odds of a "cliff-edge exit" from 15 percent to 20 percent, writing that "things are going to get hairy."
Earlier, Asian markets resumed falls as investors contemplated the outlook for more interest rate hikes by the Federal Reserve, while Washington added to China-US frictions.
Shanghai dived almost three percent to a four-year low as already-strained relations between China and the US took another hit when the White House said it planned to withdraw from an international treaty on postal rates, a decision aimed at pressuring Beijing.
The "president has gone postal, escalating US-China tensions and a stronger dollar will pose considerable headwinds to local equity markets," warned Oanda analyst Stephen Innes.
Key figures around 2040 GMT
New York - Dow Jones: DOWN 1.3 percent at 25,379.45 (close)
New York - S&P 500: DOWN 1.4 percent at 2,768.78 (close)
New York - Nasdaq: DOWN 2.1 percent at7,485.14 (close)
London - FTSE 100: DOWN 0.4 percent at 7,026.99 (close)
Frankfurt - DAX 30: DOWN 1.1 percent at 11,589.21 (close)
Paris - CAC 40: DOWN 0.6 percent at 5,116.79 (close)
EURO STOXX 50: DOWN 1.0 percent at 3,211.59 (close)
Tokyo - Nikkei 225: DOWN 0.8 percent at 22,658.16 (close)
Hong Kong - Hang Seng: FLAT at 25,454.55 (close)
Shanghai - Composite: DOWN 2.9 percent at 2,486.42 (close)
Euro/dollar: DOWN at $1.1458 from $1.1501 at 2100 GMT
Pound/dollar: DOWN at $1.3025 from $1.3115
Dollar/yen: DOWN at 112.21 from 112.65 yen
Oil - Brent Crude: DOWN 76 cents at $79.29 per barrel
Oil - West Texas Intermediate: DOWN $1.10 at $68.65 per barrel