The Dow Jones Industrial Average had lost 2.0 percent to 22,848.22, a drop of more than 480 points, around 1840 GMT.

The broad-based S&P 500 dropped 1.8 percent to 2,463.01, while the tech-rich Nasdaq Composite Index shed 2.0 percent to 6,504.39.

The latest pullback came after Republican congressional leaders told reporters President Donald Trump would not sign a stopgap spending bill because it does not contain border wall funding.

The US government only has funding to operate through December 21, and without an agreement will have to shut down.

Trump's rejection sent lawmakers scrambling for a new compromise, although Democrats have stood firm saying they will not support a spending measure that funds Trump's wall on the US-Mexico border.

The revived possibility of a shutdown came as markets were already downcast after the Federal Reserve announced another interest rate hike on Wednesday and made only subtle adjustments to the course of monetary policy tightening despite rising worries about global growth and a big pullback in the stock market.

Analysts also said the US indictment of two Chinese hackers tied to Beijing's security services reminded investors of the unsettled state of US-China trade relations.

Thursday's losses were broad-based with IBM, McDonald's, United Technologies and Chevron all losing two percent or more.

Retailers also were under pressure amid the key holiday shopping season, with Amazon down 3.1 percent, Walmart 4.0 percent and Macy's 5.0 percent.