The S&P 500 closed down 3.8 percent, Dow Jones Industrial Average 4.2 percent and NASDAQ Composite 3.9 percent. The benchmark gauge for US share volatility went through wild gyrations after hitting a two-year high.
"It looks to me like a typical type of scenario when you see a single stock flash crash where you'll see bids just disappear, stop orders get kicked", said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Thursday's losses were steady, rather than the sharp falls seen over the past few days, however.
A hint of rising inflation and rising rates last week was all it took to set off a cascade of investor angst.
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After huge gains in the first weeks of this year, stocks started to tumble last Friday after the Labor Department said workers' wages grew at a fast rate in January.
Investors anxious rising wages will hurt corporate profits and could signal an increase in inflation that could prompt the Federal Reserve to raise interest rates at a faster pace, putting a brake on the economy.
Analysts believe the steep fall was a reaction the Federal Reserve potentially raising interest rates faster, along with job increases and tax reforms.
"The fact that Monday's lows were breached (on Thursday) signals more trouble ahead and rallies are likely to give way to rising bond yields", said Peter Cardillo, chief market economist at First Standard Financial in NY.
The Dow Jones Industrial Average rallied on Tuesday and shot up 568 points, a day after it plunged a record 1,175 points on Monday.
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Japan's Nikkei 225 index skidded 6.1 percent to 21,296.03 by early Tuesday afternoon.
The Standard & Poor's 500 index, a broader market barometer that many index funds track, climbed 46.20 points, or 1.7 percent, to 2,965.14. But the Dow is up 24 percent in the past 12 months the S&P 500 has gained 18 percent. The S&P was up 35.95 points, or 1.4 percent, at 2,616.95 and the Nasdaq Composite.IXIC was up 104.04 points, or 1.54 percent, at 6,881.19. It has been an uncommonly long time since the last market correction, which ended nearly two years ago.
"Seemingly the only hope for the markets at the moment is that investors suddenly decide that the sell-off has been a bit overdone", said Connor Campbell, a financial analyst at Spreadex.
Two days of steep losses have erased the USA market's gains from the start of this year, ending a spate of record-setting calm for stocks.
Ten-year Treasury yields now stand at 2.8%, almost their highest point since 2014. US crude fell 2.5 percent to settle at $61.79 per barrel and Brent dropped 2 percent to $65.51. The benchmark had tumbled as much as 7.1 percent on Tuesday before regaining some lost ground to close 4.7 percent lower.
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CURRENCIES: The dollar edged up to 109.38 yen from 109.33 yen.
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