The Dow Jones industrial average retreated 112.00 points, or 1.3 percent, to 8,462.85. American Express and J.P. Morgan, both components of the Dow, posted the biggest losses within the index.
An earlier 258-point plunge put the Dow below last week's low point, a level many had hoped would represent a bottom in the market's sudden retreat from record terrain.
The Dow now sits nearly 900 points below the record of 9,337.97 set less than a month ago on July 17, a correction of almost 10 percent.
"Wall Street's weakness is due to increased concern that the Japanese are not getting their act together," said Alfred E. Goldman, director of technical market analysis at A.G. Edwards & Sons Inc.
"It's very hard to say whether this is the end of the selloff or whether this is the last decline or capitulation that we're going to see in the markets," said Hugh Johnson, chief investment officer at First Albany Corp. "The problem is that every time we see the markets in Asia decline, they're sending a clear message to us.
"And that message is that nothing has been done by policymakers to solve the Asian problem," said Johnson. "And that's the real problem. Until we get that signal from the Asian financial markets, our markets are going to have trouble making much progress."
Japan's Economic Planning Agency downgraded its view of that country's economy to "stagnant" from "sluggish," fueling more selling of Japanese assets.
Japan's benchmark Nikkei 225 index sank 1.4 percent to its lowest close in six weeks and its seventh loss in a row.
Meanwhile, trading on the Russian stock market was halted for 45 minutes late in the day after plunging 11.8 percent.
In Hong Kong, the Hang Seng index dropped 3.6 percent to a five-year low.
The deputy governor of China's central bank, Liu Mingkang, repeated that China does not plan to devalue its currency, the yuan. Any Chinese devaluation would pressure other Asian nations to devalue their currencies so that their goods and services remain competitive in world markets.
In Tuesday's market highlights:
- The Standard & Poor's 500 Index fell 1.3 percent.
- New York Stock Exchange losers pummeled winners by nearly 5 to 1.
- On the Big Board floor, turnover soared 34 percent to 776 million shares.
- The Nasdaq Composite declined 2.5 percent. Declining issues led advancers by more than 3.5 to 1 in the Nasdaq Stock Market. Volume totaled 728 million shares.
- The Russell 2000 Index of small-company stocks lost 2.7 percent.
- The 30-year Treasury advanced 11/32, to yield 5.602 percent.
- British Petroleum advanced 2 1/8 to 78 1/8 and Amoco surged 5 7/8 to 46 7/8 after he two petroleum giants agreed to combine in a $110 billion merger.
- GeoCities, which provides free home sites on the Internet, zoomed 20 3/8, or 120 percent, to 37 3/8 in its public debut.
- American Disposal Services declined 1/2 to 37 5/8 after agreeing to be acquired by fellow trash hauler Allied Waste Industries in a $1.1 billion stock swap. Allied shares gave up 2 7/8 to 23 5/8.
- PaineWebber Group gained 3 3/8 to 48 3/8 after Handelsblatt, a German business newspaper, reported that Dresdner Bank AG is in talks to buy the broker for about $9 billion to $10 billion, or between $59 and $66 a share. Both parties declined to comment on the story.