Stocks closed more than a half-percent lower after a bargain-hunting rally collapsed late Wednesday, with traders booking gains from earlier in the day and refusing to give the market a vote of confidence.
Financials and technology led the market lower but the selloff was nearly uniform. The Dow closed below 10,000 for the first time since early February.
The drop underscored fear in the market from global uncertainty and concerns about the strength of the US recovery, with the euro taking faltering against the dollar late in the trading day.
Microsoft was among the companies to lead the downdraft after the tech giant's CEO Steve Ballmer said that China's weak enforcement of copyright laws has cut into revenues and will push the company to turn its gaze elsewhere in Asia.
The move would be significant as China accounts for 15 to 20 percent of global computer sales, even though only 1 percent of Microsoft's revenue comes from the country.
In another blow to Microsoft, Apple shot past the software giant to become the world's biggest tech company based on market value. Both stocks ended down after a late-day sell-off, but Apple emerged ahead with a market value of about $222 billion, compared with Microsoft's $219 billion, according to Reuters data.
Wells Fargo lost more than 3 percent as the S&P 500 banks were off about 0.7 percent.
Boeing was positive, though well off its highs, on an analyst upgrade, while Disney shares bounded higher and led the Dow on takeover rumors.
The CBOE Volatility Index reflected the stunning turn of events, briefly moving positive after being off more than 30 percent at one point.
The market earlier had rallied in part because of economic news that investors viewed positively.
New home sales rose 14.8 percent in April, about triple what analysts were looking for. Single family home sales totaled 504,000 for the month.
The last trickles from earnings season helped boost sentiment, as homebuilder Toll Brothers reported earnings of 24 cents per sharethat beat expectations and lifted shares. Builders gained more than 3.5 percent.
Industrials and utilities the best of the S&P 500's sectors.
Caterpillar and Merck also were at the front of the Dow 30 pack, while McDonald's, American Express and Verizon were in the red.
The dollar reversed earlier losses, edging higher against a basket of foreign currencies, while the euro continued to weaken against the greenback.
But the 3-month Libor rate stretched its streak of gains to 12 days, creeping up to 0.5378.
Technology company Tivo reported its fifth consecutive quarterly loss Tuesday as the pace at which it added subscribers slowed.
Zions Bancorp shares rose as Morgan Keegan upgraded the regional bank to "outperform" on belief that the worst of the company's credit and dilution issues are over.
Prudential Financial shares were higher despite investor grumblings over the firm's planned takeover of AIG's Asian business. A bullish options bet would make money if Prudential's stock hits $60.94 by the June contract expiration, according to analysts at Interactive Brokers.