At 1:16 pm ET the Dow Jones was down 565.16 points at 25,261.27, the S&P 500 was down 62.55 points at 2,727.82 and the Nasdaq was down 196.65 points at 7,244.86. The Nasdaq composite lost 3.8 percent to 7,158.43. The FTSE 100 in Britain lost 2.2 percent to 6,767.
Tuesday's losses more than erased the gains of the previous two trading days, when cautiously optimistic investors bid up stock prices amid hopes that US and China were resolving their trade dispute. The two-year to 10-year Treasury spread tightened to its narrowest range in 11 years at 13 basis points.
Investors were focused on U.S. Treasury yields, where the benchmark 10-year yield fell to its lowest point since mid-September.
A protracted tit-for-tat over import tariffs has dominated the economic landscape since Trump first imposed them in January, with markets in turn rallying and tanking as investor sentiment veered.
The Russell 2000 index of smaller-company stocks gave up 68.21 points, or 4.4 percent, to 1,480.75. The S&P 600 closed at 925.06 for a loss of 44.71 points or -4.61%. The Dow plunged 690 points, or 2.8 per cent, to 25,130, more than erasing its 488-point gain over the previous two trading days.
Similarly, the S&P 500 dropped by 2.5pc with financials dropping by 4.0pc and industrials dropping by 3.5pc.
Trump tweeted Tuesday morning about negotiations on a trade deal with China and Chinese President Xi Jinping, reiterating that new tariffs could be implemented in addition to existing tariffs if the talks are unsuccessful.
The Khashoggi Killing: US senators blame Mohammed bin Salman for death
The CIA believes a Saudi hit squad killed him there on the crown prince's instructions - one of them reportedly using a bone saw. Richard Durbin, an Illinois Democrat, said in a statement that "every Senator should hear what I heard this afternoon".
Ahead of the upcoming OPEC meeting on Thursday in Vienna, Bjarne Schieldrop, chief commodities analyst at SEB, the leading Nordic corporate bank, said he believed continued cooperation would help oil prices stay above $60 a barrel.
The US stock and bond markets will be closed on Wednesday to mourn the death of former US President George H.W. Bush.
The Nasdaq is down 172.11 points, or 2.3 percent. Benchmark U.S. crude rose 0.6 percent to $53.27 per barrel in NY. Silver rose 1 percent to $14.64 an ounce. Brent crude, the global standard, added 0.9 percent to $62.22 per barrel in London.
CURRENCY: The dollar slipped to 112.80 yen from 113.20 yen. The euro declined to $1.1330 from $1.1343.
AutoZone climbed 5.6 percent to $870.65 after the auto parts retailer delivered third-quarter earnings that exceeded analysts' forecasts. The British pound fell to $1.2716 from $1.2728.
Overseas, Germany's DAX lost 1.1 percent, while France's CAC 40 dropped 0.8 percent. Heating oil climbed 0.7 percent to $1.90 a gallon. Japan's Nikkei 225 index gave up 2.4 per cent and the Kospi in South Korea lost 0.8 per cent. Hong Kong's Hang Seng added 0.3 per cent.