 "Nasdaq drops 3% in worst day since November 2011")
The Nasdaq biotechnology index shed 5.6%, its biggest one-day drop since August 2011, adding to recent losses since a large drop in Gilead more than two weeks ago triggered a wider selloff for biotechs and other recent big gainers. That index is now down 18.8% since its February 25 record close.
The S&P 500 also posted its biggest percentage loss since February 3, while the Nasdaq has dropped 7% from its closing high for the year, set on March 5. All stocks in the Nasdaq 100 index posted a loss, with the exception of CH Robinson Worldwide , which ended up 1.6% at $53.80.
The selling also hit the shares of three companies in their first day of public trading after their initial public offerings were priced on Wednesday night. All three IPOs ended lower.
"Momentum names have been driving this market higher. A lot of these names have been trading at stratospheric valuations, and on long-term outlooks, that may or may not materialize. The question is, 'At what point do they get too expensive?' Right now, I think they're looking a little expensive," said Randy Frederick, managing director of active trading and derivatives for Charles Schwab in Austin, Texas.
There's a good chance the selloff in these stocks could continue and the pullback could extend to areas beyond the momentum names, Frederick said.
The CBOE Volatility Index or the VIX, Wall Street's measure of investor anxiety, jumped 15%, its biggest daily percentage gain since February 3, to end at 15.89.
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Alexion Pharma was the S&P 500's biggest decliner, off 7.5% at $144.19, followed by Gilead Sciences, down 7.3% at $65.48, and TripAdvisor, down 7% at $81.90.
The move was a sharp reversal from the previous day, when shares rallied after minutes from the latest Federal Reserve policymakers' meeting showed members were more keen to keep rates low than previously expected.
The Dow Jones industrial average plummeted 266.96 points or 1.62%, to end at 16,170.22. The S&P 500 lost 39.09 points or 2.09%, to close at 1,833.09.
The Nasdaq Composite dropped 129.794 points or 3.1% - its biggest daily percentage loss since November 9, 2011 - to 4,054.106.
The S&P 500 closed below its 50-day moving average for the first time since February 10.
The stock of bailed-out auto lender Ally Financial Inc fell 4.1% to close at $23.98 in its market debut.
Two biotech companies - Cerulean Pharma Inc and Adamas Pharmaceuticals Inc - also slid in their trading debuts. Cerulean fell 2.1% to close at $6.85, while Adamas lost 12.4% to end at $14.01.
Among Internet-related tech shares, which were among last year's biggest advancers, Facebook Inc fell 5.2% to end at $59.16, while Netflix Inc sank 5.2% to close at $334.73.
"You've basically more than erased the bounce of the last two days, so I would imagine any bounce from these levels is probably going to be met with supply because the market is on very tenuous legs right now," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
Among other big decliners, shares of Imperva Inc plunged 43.7% to $28 after the data center security company reported preliminary first-quarter results. Rival FireEye Inc lost 11.8% to $49.75.
On the earnings front, Bed, Bath & Beyond shares slumped 6.2% to $63.72 after the home-goods retailer reported fourth-quarter sales that fell from a year ago and gave a first-quarter outlook that was below expectations.
The day's economic data was encouraging, however, with initial jobless claims dropping sharply last week to the lowest in almost seven years, suggesting job growth may be picking up after a harsh winter.
After the bell, shares of Gap dropped 2.4% to $38.33. The slide followed the clothing retailer's report on its March sales and reaffirmation of its 2014 outlook. In contrast, shares of H&R Block rose 7.7% to $30.60 in extended-hours trading after the UStax preparer said it would sell some assets and transfer certain liabilities to BofI Federal Bank.
Volume was high, with 7.5 billion shares changing hands on US exchanges, well above the 6.8 billion average so far this month, according to data from BATS Global Markets.
Decliners outnumbered advancers on the New York Stock Exchange by a ratio of 3.6 to 1. On the Nasdaq, about 6.6 stocks fell for every one that rose.