 "Asia shares buckle beneath global growth woes")
Government bonds were in big demand as investors wagered global inflation would continue to slow and even put off the day when U.S. interest rates might rise.
Minutes of the Federal Reserve's last policy meeting are due later in the session and markets will be acutely sensitive to how the debate between hawks and doves on the committee was playing out.
In Asia, Japan's Topix shed 1.6 percent while the Nikkei dropped 1.4 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent, while Australia's main index lost 1.1 percent.
Dealers were now waiting anxiously to see how China's markets react as they return from a week-long break. China also has the only major piece of economic news in the region with the release of the HSBC PMI for the services sector.
Traders will be hoping the figures are better than Tuesday's dismal selection. German industrial output fell 4.0 percent in the biggest decline since the height of the financial crisis, piling yet more pressure on the European Central Bank to be more urgent in its actions.
At the same time, the IMF shaved its global growth forecast to 3.3 percent for this year, from 3.4 percent, warning of weakness in core euro zone countries, Japan and big emerging markets such as Brazil.
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"Weak numbers like the German production report fuel concern that ECB stimulus will be inadequate given the gloomier news," said Westpac analyst James Shugg.
"With the IMF waving its knife at its global growth forecasts, U.S. markets couldn't avoid the downdraft either."
The Dow fell 1.6 percent, while the S&P 500 lost 1.51 percent and the Nasdaq 1.56 percent. The pan-European FTSEurofirst 300 also shed 1.5 percent.
The small-cap Russell 2000 ended near a one-year low as investors reined in riskier bets ahead of this week's start of third-quarter earnings reports.
WHAT INFLATION?
Inflation swaps for the euro zone, which essentially show what investors think inflation will average over the next five years, have been in precipitous decline, touching an historic low of 1.89 percent this week.
This is one of ECB President Mario Draghi's favoured measures of inflation and its decline was a major reason the central bank launched a fresh stimulus package last month.
But the downdraft in inflation expectations is hardly confined to Europe. The U.S. swaps rate has sunk to 2.62 percent, from 2.88 percent in August, even as the run of U.S. economic data has been generally encouraging.
Likewise, longer-dated U.S. Treasury yields have fallen noticeably as investors price in low inflation for longer.
Yields on 30-year bonds are now at their lowest since May 2013 at 3.05 percent, while their premium over two-year yields shrank to the smallest since late 2012.
Futures contracts predicting the course of the Fed funds rate have rallied hard in recent days as the market pushed out the date for the first hike.
They now show less than 50 basis points of tightening for 2015 and all of it in the second half of the year.
The fall in U.S. yields dragged the dollar down from its recent highs. The dollar index eased to 85.569, off a four-year peak of 86.746 hit on Friday.
The dollar slid to a three-week low of 107.76 yen, further recoiling from a six-year high of 110.09 set a week ago. The euro edged up to $1.2677, and away from a two-year trough near $1.2500.
Commodities were under pressure as global demand fell short of supply. Brent crude oil fell 31 cents to $91.80 a barrel. It hit $91.25 on Monday, the lowest since June 2012.
U.S. November crude eased another 27 cents to $88.58 a barrel, uncomfortably close to its recent trough of $88.18.