Commodity prices also fell, with copper hitting a one month-low and oil heading for its worst week since early October.
"It's looking pretty ugly all round. The question is whether markets have fully priced that in," said Nic Brown, an analyst at London's Natixis.
"The Chinese economy is slowing and the authorities are waking up to that fact ... It's now a question of whether they are prepared to ease monetary conditions as a result."
Manufacturing in China shrank at its sharpest pace in 32 months in November, reviving fears of an abrupt slowdown for the world's second-largest economy.
In Germany, Europe's manufacturing heavyweight, factory activity contracted for a second straight month, and at a faster rate, as export demand slumped.
The dollar climbed to a six-week peak against the euro and hit session highs against the yen as investors continued to shun risk and seek safety in the currency of the world's largest economy.
US Treasuries prices dipped after government data showed new US claims for unemployment benefits held below 400,000 for the third straight week, suggesting the labor market was gaining some traction.
The Dow Jones industrial average fell 168.62 points, or 1.47 percent, to 11,325.10. The Standard & Poor's 500 Index slid 20.11 points, or 1.69 percent, to 1,167.93. The Nasdaq Composite Index dropped 47.57 points, or 1.89 percent, to 2,473.71.
On the eve of the Thanksgiving holiday in the United States, trading volume was likely to be low, amplifying turbulence, traders said.
"I think that after all the losses we've suffered, the market is oversold. But the fact that we've fallen so far so fast suggests there could still be further room to drop," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York.
World stocks, as measured by the MSCI All-Country World Index, tumbled 1.8 percent to their lowest level since Oct. 10.
The global gauge was down for the eighth straight session, its longest losing run since late July and early August when the debt crisis, which began in Greece two years ago, spread to Italy. The index has lost more than 13 percent this year.
Europe's FTSEurofirst 300 was down 0.7 percent.
The benchmark 10-year US Treasury note was down 2/32 in price, with the yield at 1.929 percent versus Tuesday's close of 1.93 percent.
In the commodity markets, Brent crude oil fell 1.5 percent, or around $1.60, to $107.42 per barrel. Copper futures on the London Metal Exchange were off 1.7 percent at $7,206 a tonne.
Copyright Reuters, 2011