New York's Dow Jones Industrial Average fell 3%, or more than 800 points, in Wednesday trading.
That was its worst drop in eight months.
The S&P 500 was also down 3% while the tech-heavy Nasdaq lost 4%.
It followed a bleak session in Europe, where Germany's Dax and France's Cac 40 had each ended the day more than 2% lower.
In London, the FTSE 100 was down by 1% as hopes of a Brexit deal lifted the pound - weakening the sterling value of earnings for many of the global index's multinational constituents.
But it was the rout across the Atlantic that proved even more eye-catching with the rise in US Treasury bond yields to seven-year highs seen as a key factor.
The increase in yields from these bonds - which are parcels of US government debt - can hurt stocks since they will provide competition for investors' cash.
At the same time, the burgeoning trade war between the US and China has been creating uncertainty on corporate earnings.
Rising costs, as inflation and borrowing rates pick up, could also be a worry for stock markets.
Mona Mahajan, US investment strategist at Allianz Global Investors, said: "The market is digesting the potential that rates moving upwards eventually seep into the real economy in the form of mortgage rates, auto rates, student lending rates.
"What we're seeing here is the market positioning for potential lower growth."
Some of America's biggest tech stocks were caught up in the sell-off, with Netflix down 8%, Microsoft sliding 5%, Amazon off by 6% and Google's parent company Alphabet down 5%.
Adding to the worries was the impact of Hurricane Michael on insurance companies as well as fears about demand in China which weighed on luxury brands such as Tiffany - down 10% - as well as Ralph Lauren, which was off 8%.
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In the UK, Burberry had finished 8% lower on Wednesday.
Meanwhile struggling retailer Sears was in focus as the Wall Street Journal reported that it was preparing to file for bankruptcy. It fell 17%.