The drop was not as severe as originally feared, however, as markets had plummeted around the world before U.S. markets opened. In Japan, the Nikkei 225 index closed down 9.6 percent . Germany's DAX index was down as much as 10.8 percent and Britain's FTSE 100 fell as much as 8.7 percent throughout the day.
The Dow Jones Industrial Average fell 420 points in opening trading, but regained some ground throughout the day. At the closing bell, the Dow was down 312.30 points, or 3.59 percent, to end unofficially at 8,378.95.
"There's a lot of panic out there today," Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, told the Associated Press. "People have been saying that we're in a recession. This is the realization."
The markets were reacting to dismal worldwide economic and corporate data. In the U.K, the third quarter gross domestic product fell .5 percent, the first time it had fallen in 16 years. Britain is the first of the seven most-industrialized countries to report its earnings, and some experts told the New York Times they expect other countries' GDPs to contract as well.
"This is going to be a long drawn-out downturn of about 5 quarters of negative growth, and there will be very few major economies that will escape recession," economist James Knightley of ING Financial Markets in London told the New York Times.
The Commerce Department will release its estimate of U.S. third-quarter economic performance October 30, and experts project it will show the GDP shrank by .5 percent, according to the Associated Press.
In Japan, Sony shares fell more than 14 percent after it cut its earnings forecast for the fiscal year. In Germany, Daimler's shares fell 11.4 percent after it reported lower third-quarter earnings.
In the past several weeks, governments have taken steps to unfreeze credit markets, and there are some signs that it's working; rates banks charge each other for interbank short-term loans have been falling.
But companies, already feeling an economic pinch, have been cutting jobs and freezing hiring. On Thursday, the Labor Department said that new applications for unemployment rose 15,000 last week, to 478,000. And companies including Merck, Yahoo, Goldman Sachs and Chrysler have announced thousands of layoffs.
The White House said yesterday that the economy is going through a "rough ride."
"We expect our GDP number next week not to be a good one and the next quarter to be tough as well," White House spokeswoman Dana Perino said, according to the Associated Press.