Stocks fell in a jittery bout of trading on Thursday, on concerns about the US housing market and consumer spending after an uptick in inflation.
Analysts say stock markets are likely to remain volatile
Investors were also uncertain if the worst of the credit crisis was over, with fears of more losses at big banks.
The Dow Jones industrial average fell 120.96 points, or 0.91%, to 13,110.05 after stocks in Europe and Asia fell.
Rising inflation, with high fuel prices a major factor, could make consumers cut back spending.
It could also prevent the Federal Reserve from lowering interest rates further in coming months to shore up the economy.
Wells Fargo, the second-largest US mortgage lender, said that housing market downturn was far from over.
"We have not seen a nationwide decline in housing like this since the Great Depression," said Wells Fargo chief executive John Stumpf.
The Federal Reserve also pumped $47.25bn into US money markets to help ease tight liquidity.
This marked its biggest infusion of cash into the US banking system since just after the 11 September attacks.
To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector since August.
Stock markets in Europe and Asia also chalked up losses.
London's FTSE 100 index of leading shares ended the day down 1.13%, or 72.50 points, at 6359.60.
The Paris Cac 40 index slid 0.93%, while Frankfurt's Dax shed 1.49%.
It was a similar story in Asia, with Japan's Nikkei closing down 0.6% and Hong Kong's Hang Seng index ending the day 1.4% lower.
Concern about banks' financial exposure to investments backed by US mortgages that have gone bad has been causing extreme volatility on global markets in recent weeks.
Earlier on Thursday, UK bank Barclays unveiled a £1.3bn write-down for the July to October period on its exposure to credit market problems, although this was less than feared.
"There's just too much fear in the financials," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland, Ohio.
"The fear is back again that the write-downs are kind of a mystery and no one really knows what the bottom is or what the outcome is going to be."
HSBC, UBS, Bank of America, Morgan Stanley, Merrill Lynch and Citigroup have all suffered financial pain as a result of the sinking US mortgage market.
US consumer prices rose in October as energy and food prices shot up, official data has shown.
Although in line with forecasts, the inflation data knocked US stock prices lower as investors worried about the strength of consumer spending.
The US Labor Department said its consumer price index rose 0.3% in October, while core prices, excluding food and energy costs, rose 0.2%.
A downbeat outlook from retailer JC Penney also raised fears that problems in the US housing market were taking their toll on shoppers.