Bank shares dragged Wall Street lower on Thursday on concerns the slowing global economy will continue to pressure interest rates, while energy shares helped pare losses late in the session.
Volume was high as the S&P 500 touched its lowest in two years at its session low but shaved half its loss by the close after the Wall Street Journal reported OPEC was ready to cooperate on crude oil production cuts, citing the UAE energy minister.
The energy sector of the S&P ended down 0.4 per cent after earlier falling 3 per cent.
Financial shares, however, closed near their session low and the sector ended at its lowest since October 2013. Bank of America, down 6.8 per cent at $11.16 and JPMorgan, down 4.4 per cent at $53.07, were the largest drags on the S&P 500.
"The fear is we're headed for global recession," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.
He said the run into safety assets like Treasuries and gold hinted to a capitulation among stock investors and "the downside risk from here is less than the upside potential''.
Spot gold prices jumped 4.1 per cent in their largest daily gain since September 2013. The yield on the benchmark 10-year US Treasury note touched its lowest in more than three years.
The rout in bank stocks comes as investors fear that negative interest rates employed by a growing band of central banks to spur economic growth are now part of the problem rather than the solution.
The Dow Jones industrial average fell 254.56 points, or 1.6 per cent, to 15,660.18, the S&P 500 lost 22.78 points, or 1.23 per cent, to 1,829.08 and the Nasdaq Composite dropped 16.76 points, or 0.39 per cent, to 4,266.84.
Boeing tumbled 6.8 per cent to $108.44, hit by a report that regulators are probing the planemaker's accounting.
Cisco led tech stocks higher with a 9.6 per cent increase to $24.68 after reporting a bigger-than-expected profit.
Declining issues outnumbered advancing ones on the NYSE by 2,576 to 525, for a 4.91-to-1 ratio on the downside; on the Nasdaq, 1,935 issues fell and 843 advanced for a 2.30-to-1 ratio favouring decliners.
About 11.2 billion shares changed hands in US exchanges, compared with the 9.6 billion daily average over the past 20 sessions.
Declining issues outnumbered advancing ones on the NYSE 4.46-to-1 and the Nasdaq had a 2.30-to-1 ratio favoring decliners.
The S&P 500 posted 2 new 52-week highs and 100 new lows; the Nasdaq recorded 3 new highs and 416 new lows.