On top of that, Tuesday's (October 1st) ISM data had fuelled up fears that a US-China trade abrasion had finally hit the manufacturing sector of the world's largest economy, stoking possibilities of a near-term recession as US manufacturing activity had finally entered into a technical recession joining euro zone's largest economy Germany, world's second-largest economy China alongside the third-largest Japan.
Investors were jolted by surprisingly slow growth in the USA services sector last month, the weakest in three years.
The Dow closed a little below 500 points, some 1.9% lower. Both the S&P 500 and Nasdaq were slightly higher following the early rout.
It's a volatile start to October for the Dow, losing more than 800 points in two days.
A ruling by a world trade body allowing the U.S.to impose tariffs on European goods as retaliation for illegal subsidies to Airbus also raised fears that global trade tensions could get worse.
Further signs of weakness in the USA economy may prompt the Federal Reserve to lower interest rates again at its next meeting in late October following two back-to-back quarter percentage point cuts in August and September, which were the first easings in monetary policy by the Fed in over a decade.
Banks were also among the biggest losers as bond yields continued to slide.
PepsiCo Inc rose 2.1% after the company beat quarterly expectations as higher advertising and new low-calorie versions of Gatorade boosted demand for its beverages in North America.
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Japan's Nikkei 225 slipped 0.5%, South Korea's Kospi fell 2% and the Hang Seng in Hong Kong dipped 0.2%.
The technology stocks which have powered the market's climb for most of the year, shed 2.10%. The Russell 2000 lost 0.4%.
Several other factors could spur volatility in coming months, analysts say.
For example, over the past month, shares of financials and energy companies in the S&P 500 have outperformed the broader gauge, jumping 4% and 4.7%, respectively.
USA and Chinese envoys are expected to meet for yet another round of trade talks next week, and markets have been quick to move on any hint of the chances of a possible deal. If the U.S.jobs market slows, it would remove support from one of the main pillars propping up the economy: strong spending by households.
The focus is now on the US Department of Labor's more comprehensive jobs report on Friday for further clues on the health of the economy.
It's unclear whether this rotation will persist, and some investors say that its path will be shaped by the health of the USA economy and the ongoing trade fight with China. The solid forecast followed surprisingly good third quarter profit and revenue.