Wall Street shares tumbled on Tuesday, sending all three major indexes down more than 3% in some of the steepest declines in weeks.
The Dow Jones index shed almost 800 points, or 3.1%, to close at 25,027.07.
The S&P 500 ended at 2,700.07, down more than 90 points or 3.24%, while the Nasdaq dropped more than 283 points or 3.8% to 7,158.43.
The falls came as a closely-watched financial measure caused alarm about US economic prospects.
Increasing doubts that talks between the US and China would defuse trade tensions also fuelled the losses, reversing Monday’s rise, which followed optimism about those prospects.
The declines extended a period of market turbulence that started in October, after the indexes hit record highs earlier in the summer.
The losses touched nearly every sector, with financial companies suffering the biggest declines.
Analysts said the trigger for Tuesday’s falls appeared to be concerns about the “yield curve”, which measures the difference between the interest rates paid on short-term and long-term US bonds.
The gap has narrowed in recent months, as investors demand higher rates of return on short-term debt in anticipation of inflation and rate rises.
At the same time, they are accepting relatively lower rates on long-term debt, in anticipation of limited inflation and slower economic growth over the next decade.
The difference between the rates on three-year and five-year debt disappeared on Monday.
The move fuelled concerns on Tuesday that the same might happen to the gap between two-year and 10-year bonds – a more significant indicator.
Researchers have found that changes in the yield curve often signal recession.
Analysts at S&P Global Ratings said they expected US economic growth to slow, not necessarily contract, in coming months, as a boost from recent tax cuts and increased government spending fades.
However, the firm added that the risk of recession had grown, reflecting “increased volatility” in financial markets.
On Tuesday, shares in financial companies, which are especially exposed to interest rates, were hardest hit.
Firms such as JP Morgan Chase, Goldman Sachs, American Express were among the biggest losers on the Dow, all down by more than 3%.
Companies at risk in the trade battle, including Apple and aerospace giant Boeing, also suffered steep declines, amid scepticism that the US and China would retreat from their tariff war.
“It was good while it lasted,” said Fiona Cincotta, senior market analyst at City Index, referring to Monday’s rally.