The benchmark Dow Jones Industrial Average shed 1.11 per cent to 12,500.46 points while the broader S&P 500 declined 1.51 per cent to 1,314.44 points. The tech-heavy Nasdaq Composite, too, was no exception, sliding 1.70 per cent to 2,843.05 points.
Uncertainty over ways to tackle the escalating European crisis and news of Spain officially seeking bailout for its banks weighed on investor sentiment.
The summit of leaders from Europe this week is expected to provide some clues on the way forward for the debt-laden Eurozone.
In late afternoon trade, stocks in Europe were deep in the red. The benchmark indices dropped in the range of 1-2 per cent.
France's key CAC-40 index crashed two per cent to 3,025.33 points while Germany's DAX fell over one per cent to 6,152.79 points. London Stock Exchange's FTSE 100 index dropped nearly one per cent to 5,460.10 points.
Earlier in the day, most of the Asian markets -- already wary of slowing Chinese and Indian economies -- closed in the negative territory.
South Korea's Kospi index was one of the major losers in Asia region, shedding over one per cent to end the day at 1,825.38 points. Japan's Nikkei 225 declined about one per cent to close at 8,734.62 points.
