Energy and material companies shares fell sharply lower due to plummeting commodity prices. Exxon Mobile was the top drag on the Dow, down almost 10 percent. Boeing Company's shares fell 7.5 pc after the aircraft maker reported a steep drop in quarterly profit and warned it might need to provide financing to some of its customers in 2009. US's top phone carrier AT& T's shares fell 7.6 pc.
The credit crisis which has pluged the United States and Europe has begun to hit developing countries. Stock markets around the world have fallen sharply over the last two days.
The Dow Jones industrial average fell 514.45 points, or 5.69 percent, to 8,519.21. The Standard & Poor's 500 Index slid 58.27 points, or 6.10 percent, to 896.78, its lowest closing level since April 2003.
The Nasdaq Composite Index dropped 80.93 points, or 4.77 percent, to 1,615.75, closing at it lowest level since June 2003.
Trading volume was low on the New York Stock Exchange, with about 1.56 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.57 billion shares traded, above last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by more than 5 to 1 and, on the Nasdaq, by about 6 to 1.