United States government bonds resumed a selloff after rising to multi-year highs last week, with the 2-year yield rising to 2.906%, its highest level since June 2008. Boeing lost 4.7 percent to $367.57 and Alphabet, Google's parent company, gave up 4.6 percent to $1,092.16.
At its worst, the Dow Jones index dropped by as much as 699 points, before closing 546 points (2.1 per cent) lower at 25,053.
The yield on the 10-year Treasury is 3.20%, the highest level in seven years. The S&P 500 closed at 2,728.38, down 2 percent.
The Dow Jones industrial average gave up 738 points, or 2.8 per cent, to 25,686.
Meanwhile, the technology-heavy Nasdaq index dropped by 1.3pc to 7,329. The VIX Volatility Index was higher at 22.27 for a gain of 6.32 points or 39.62%.
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USA shares are set for big declines when markets open Thursday.
"What we're seeing here is the market positioning for potential lower growth".
It followed a bleak session in Europe, where Germany's Dax and France's Cac 40 had each ended the day more than 2% lower. Think of it this way, if the Treasury issues a $1000 bond paying 3 percent interest, investors will not pay $1000 for an older bond paying 2 percent interest.
Rising interest rates from the Fed and a tight employment market don't reassure investors, either.
"As stocks go up, tech goes up more than the stock market".
Netflix shares fell by 6pc and have now fallen by 12pc in the last five days.
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United States stocks notched solid gains in the third quarter as investors brushed aside worries about trade wars and focused on strong corporate earnings and solid United States economic data.
Sears Holdings plunged 33.3 percent.
Earnings were a major driver of the market last quarter, and analysts see more robust results ahead, even if companies face growing issues like the yet-to-be-resolved trade war and higher raw-materials costs.
The increase in yields from these bonds - which are parcels of United States government debt - can hurt stocks since they will provide competition for investors' cash.
After months of declines, the price of gold jumped by the most in two years, rising 2.9 percent to $1,227.60 an ounce.
Alibaba dropped 4.1 percent after Morgan Stanley and Raymond James cut their near-term profit estimates on the Chinese e-commerce company, citing a softer economic environment in China. Tech stocks saw slight recoveries as well after being hit hard on Wednesday.
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The dollar fell to 111.94 yen from 112.59 yen, and the euro rose to $1.1594 from $1.1525.