Fears of a global recession drove stock and commodity markets lower on Tuesday despite a further thawing in credit markets and more steps by authorities around the world to bolster investor confidence.
Downbeat outlooks from some key U.S. companies helped revive a bid for safety, lifting the price of U.S. government debt and spurring the U.S. dollar to a one-and-a-half-year peak against a basket of major currencies.
Gold futures dropped as much as 4 percent as the dollar's rally and relatively calm global markets dimmed the metal's appeal as an alternative investment.
A sharp pullback in commodity prices and commodity-linked stocks on global growth concerns and a potential worldwide recession sent a pall over financial markets, despite renewed efforts to loosen still-tight credit.
"It's a foregone conclusion that the economy is slowing and that companies are going to be issuing downbeat forecasts," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati, Ohio.
The Dow industrials fell 2.5 percent, while the Nasdaq skidded over 4 percent, outpacing losses in European markets.
Japan and France extended more help to banks, the International Monetary Fund prepared to intervene in trouble spots around the world, and the U.S. Federal Reserve devised a new plan to inject liquidity into troubled money markets.
Interbank lending costs fell further, offering tentative signs of renewed confidence in a battered global banking system. Weeks of bailouts and rescue plans appear to have cooled the worst financial crisis since the Great Depression.
Commodity prices pointed to recession worries. Oil fell 4.5 percent to under $71 a barrel and copper slipped to lows last seen in January 2006 after China, the largest consumer of industrial metals, saw growth slow in the third quarter.
Both copper and oil are trading more than 50 percent lower than the peaks they reached in July.
"The deleveraging story will continue and remain in place for quite some time," said Audrey Childe-Freeman, a currency analyst at Brown Brothers Harriman in London. She referred to the sale of distressed assets to cut debt or cover losses.
U.S. stocks skidded as companies cut their earnings outlooks. Automotive stocks pulled European shares lower in another sign of falling demand, and energy shares on both sides of the Atlantic tracked the fall in crude prices.
The Dow Jones industrial average closed down 231.77 points, or 2.50 percent, at 9,033.66. The Standard & Poor's 500 Index fell 30.36 points, or 3.08 percent, at 955.04. The Nasdaq Composite Index slipped 73.35 points, or 4.14 percent, at 1,696.68.
Tech bellwether Texas Instruments Inc warned of slowing sales for its widely used analogue chips, while chemical maker DuPont Co cut its full-year forecast on weakening demand in North American and Western European markets.
Texas Instruments slipped 6.3 percent and DuPont gave up 8 percent.
Freeport-McMoRan Copper & Gold Inc , the largest publicly traded copper producer, said quarterly profit fell by one-third and it would curtail planned mine expansions because of weak metals prices. Freeport shares fell 10.8 percent to $32.74, and are now off almost 75 percent since peaking at $127.23 in May.
Caterpillar Inc ,a maker of excavators and bulldozers, also missed profit expectations, sparking a drop of 5.1 percent in its stock price.
The S&P energy index shed 4.3 percent.
In Europe energy shares tracked weaker crude prices and automobile stocks slipped on demand worries and rising costs.
The FTSEurofirst 300 index of top European shares ended down 0.47 percent at 923.93 points.
Volkswagen fell 12.4 percent, taking the most off the FTSEurofirst index.
Oil was pressured by expectations a global recession will crush demand and limit the impact of any supply cuts this week by the Organisation of Petroleum Exporting Countries.
U.S. crude for November delivery, which expired on Tuesday, settled down $3.36 at $70.89 a barrel.
London Brent crude traded down $2.97 at $69.06 at 3.53 p.m.
The benchmark 10-year U.S. Treasury note rose one full point in price to yield 3.74 percent, while the 2-year U.S. Treasury note added 6/32 in price to yield 1.61 percent.
The dollar gained against a basket of major currencies, with the U.S. Dollar Index up 1.66 percent at 84.355. Against the yen, the dollar fell 1.64 percent at 100.22.
The euro fell 2.08 percent at $1.3064.
Gold futures for December delivery settled down $22 at $768 an ounce in New York.
MSCI's all-country world stock index , a broad measure of global stock market performance, was off 1.4 percent after gaining for two days in a row.