Wall Street shares have suffered their worst single-day points fall since 24 March 2003, wiping out the gains made so far this year.
The stock market had got off to a healthy start to 2006
The main Dow Jones industrial average slumped amid disappointing earnings from industrials General Electric and Citigroup.
The wider Standard & Poor's 500 and technology-heavy Nasdaq were also rocked by a stock-selling spree.
A jump in crude oil prices in New York added to market pressures.
Earlier this month the Dow closed above 11,000 points for the first time since the 11 September attacks in 2001.
All bar one
Stocks had rallied on Thursday after a fall on Wednesday - caused by an early close of the Tokyo stock market in the wake of fraud allegations surrounding internet firm Livedoor.
Despite the rally - and seemingly impressive profits results by phone maker Motorola - traders were hit by the jitters after disappointing earnings news from Citigroup, the day's biggest faller, and General Electric.
At close the Dow Jones Industrial Average was down 213.32 points, or 1.96%, to 10667.39, and every listed firm was in negative territory apart from McDonald's, up 1.9%.
Meanwhile the Standard & Poor 500 dropped 23.55 points, or 1.83%, to 1261.49, and the Nasdaq shed 54.11 points, or 2.35%, to 2247.70, its biggest fall since August 2004.
The market was unsettled as oil prices topped $68 a barrel after alleged new threats to the US by al-Qaeda, worries about Iran's nuclear intentions and production disruptions in Nigeria.
New York's main contract, light sweet crude for delivery in February, jumped $1.52 a barrel to close at $68.35.
"The market's been watching the earnings reports very closely. We got off on the wrong foot with Citibank and GE," said Evan Olsen, head of equity trading at Stephens.
"You've also had oil lifting higher with Bin Laden acting up and Iran acting strange, which is concerning going into a weekend, so people are taking profits."