The S&P 500 fell 52, or 4.4 per cent, to 1,120, and the Nasdaq fell 101 points, or 4.1 per cent, to 2,381.
On Tuesday, the Dow gained 429 points after the Fed said it planned to keep interest rates extremely low at least through the middle of 2013.
Equities on Europe swooned amid rumours that a downgrade of France's AAA credit rating was imminent and concern persisted that the debt crisis had yet to run its course.
While Standard & Poor's, Moody's Investors Service and Fitch Ratings all affirmed France's top credit rating, banks tumbled on both sides of the Atlantic. Societe Generale dropped 15 per cent, even as France's No. 2 lender denied speculation of trouble.
The Stoxx Europe 600 Index closed with a 3.8 per cent drop for the day.
Financial stocks on Wall Street suffered along with their European counterparts, with the KBW bank index shedding 6 per cent.
"You've already had situations in Greece, Spain has been in there, Portugal, and now if you are talking about France, which because it's a bigger economy, it probably generates more concern on a comparison basis," Gordon Charlop, managing director of Rosenblatt Securities in New York, told Reuters.
"So there are investors who are a little bit more cautious about European financials and that translates into financials here."
Wall Street's so-called fear gauge, the CBOE Volatility Index, was last up 8.5 per cent at 38.04, after climbing as high as 44.41 earlier in the session.
Economic fears are weighing heavily on Americans, with a large majority saying the United States is on the wrong track and nearly half believing the worst is yet to come, a Reuters/Ipsos poll said on Wednesday.
The poll reflected growing anxiety about the economy and frustration with Washington after a narrowly averted government default last week, a credit rating downgrade by Standard & Poor's, a stock market dive and a stubbornly high 9.1 per cent jobless rate, according to Reuters.
A worsening economic outlook is considered bad news for companies that depend on discretionary spending. Entertainment company Walt Disney shed more than 9 per cent.
Even companies whose fortunes aren't necessarily tied to the economy are suffering. EON AG plunged after Germany's biggest utility announced plans to cut more than 10 per cent of its workforce.
In this climate it is easy for gold to sustain its rapid ascent to fresh records.
"Gold will continue to appreciate until there is a fundamental shift in the government policies." James Dailey, who manages US$185 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania told Bloomberg News.
Gold futures for December delivery were 2.5 per cent higher at US$1,786.80 at 12.34pm on the Comex in New York, after hitting a record US$1,801 earlier today.
Bank of America Merrill Lynch, in a report dated yesterday, raised its 12-month gold-price forecast to US$2,000 on the increased chance for another round of US asset purchases, known as quantitative easing, Bloomberg reported.
