Weak economic data, the conflicts in Iraq and Russia, and growing unrest in Hong Kong have contributed to expectations that markets will become increasingly rocky in coming months.
"If you spent the entire summer wishing there was more volatility in the market, your dream has come true," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
"You have multiple global macro concerns, a new Ebola scare, beginning of a new quarter, and on the very short horizon, earnings season starting."
Bond markets drew safe-haven bidding, with the benchmark U.S. 10-year Treasury's
MSCI's global index of equities <.MIWD00000PUS> was down 1 percent after a 3 percent drop in September. The pan-European FTSEurofirst 300 <.FTEU3> equity index closed down 0.9 percent after final September purchasing managers numbers from France, Germany and the euro zone as a whole highlighted the instability of the European recovery.
U.S. purchasing managers' data was also weaker than expected, though it still showed growth in factory activity.
Wall Street was sharply lower, continuing its recent weakness. The Russell 2000 index <.RUT> index of smallcap stocks ended in correction territory, now at more than 10 percent below the record closing high set in March.
Airline and hotel stocks dropped in reaction to the first confirmed U.S. case of Ebola. The NYSE Arca Airline index <.XAL> suffered its biggest percentage decline since January. The Dow Jones transportation average <.DJT> dropped 2.5 percent, its biggest daily percentage drop since February.
But shares of drugmakers with treatments for Ebola rallied sharply on news of the first U.S. case of the disease.
The Dow Jones industrial average <.DJI> fell 238.19 points, or 1.4 percent, to 16,804.71, the S&P 500 <.SPX> lost 26.13 points, or 1.32 percent, to 1,946.16 and the Nasdaq Composite <.IXIC> dropped 71.31 points, or 1.59 percent, to 4,422.09.
The dollar <.DXY> was little changed near a four-year high, helping some commodity prices bounce from Tuesday's sell-off. Spot gold
The euro zone data, along with a report on slowing euro zone inflation on Tuesday, underscored the contrasting monetary policy outlooks of the U.S. Federal Reserve and the European Central Bank. The ECB meets on Thursday, and its accommodative stance has had investors favouring the dollar over the euro.
The euro
Oil prices were initially helped by Chinese PMI data before fading late in the session. China's PMI stayed at 51.1, modestly above the 50 level that separates growth from contraction and just above the 51 forecast. [O/R] [ID:nL3N0RW0TH]
Brent crude oil
(Additional reporting by Yasmeen Abutaleb; Editing by Meredith Mazzilli, Dan Grebler and Leslie Adler)
By Chuck Mikolajczak