Gold prices rose to their highest in nearly two weeks before paring gains, while the yield on Germany's 10-year bond fell to a 2-1/2 week low as worries over U.S.-China trade talks once again swept world markets.
The dollar edged higher as the worsening trade tensions overshadowed the release of minutes from the Federal Reserve's policy-setting meeting in October. A divided Fed decided to hit pause after it cut interest rates for a third time this year.
"The main focus today has been the trade war headlines. That's the proximate reason we sold off," said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.
"The Fed was a non-event in terms of price action," he said.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.44%, its biggest single day decline in more than two months.
The slide cooled a stock rally that has pushed the index up almost 20% so far this year and led to multiple record highs for Wall Street's three main equity indices, the latest on Tuesday.
Germany's DAX, the most trade-sensitive among Europe's regional indexes, closed down 0.48%, cutting earlier losses in half.
While trade tensions have roiled markets, sparking at times volatile risk-on, risk-off sentiment, a deal may not be needed for equities to do well, Antonelli said.
"Trade headlines, while impacting the market in the short term, don't seem to be impacting it longer term as evidenced by the fact we're near all-time highs even in the absence of any deal," he said.
In a deal seen as a boost to Hong Kong after five months of anti-government protests, Chinese e-commerce giant Alibaba Group raised up to $12.9 billion in a landmark listing. It was the largest share sale in the city in nine years and a world record for a cross-border secondary share sale.
President Donald Trump said on Tuesday the United States would raise tariffs on Chinese imports if a trade deal is not reached. China's foreign ministry said the United States should stop interfering in Hong Kong and Chinese affairs.
The U.S. House of Representatives on Wednesday will attempt to quickly pass the bill the Senate approved, a spokesman for House Speaker Nancy Pelosi told Reuters.
Markets overnight in China fell, with the blue-chip CSI300 index <.CSI300> falling 1.0% and the Shanghai Composite Index down 0.8%.
In Europe, the pan-regional STOXX 600 index fell 0.41% while the emerging markets index slid 0.51%.
The Dow Jones Industrial Average fell 112.93 points, or 0.4%, to 27,821.09, the S&P 500 lost 11.72 points, or 0.38%, to 3,108.46 and the Nasdaq Composite dropped 43.93 points, or 0.51%, to 8,526.73.
The dollar index rose 0.07%, with the euro down 0.06% to $1.1071. The yen weakened 0.07% versus the greenback at 108.64 per dollar.
Yields on government 10-year debt across the euro area fell 3 to 4 basis points, after trading in a narrow range the past two sessions.
In Germany, the yield on the 10-year bund fell to as low as -0.384%, down 16 basis points from five-month highs hit earlier this month.
Yields on the benchmark 10-year U.S. Treasury note rose 12/32 in price, pushing its yield down to 1.7431%.
Oil prices jumped as U.S. crude inventories rose less than expected and as Russia said it would keep cooperating with the Organization of the Petroleum Exporting Countries to limit global supplies.
Brent crude futures rose $1.49 to settle at $62.40 a barrel, while U.S. benchmark WTI crude futures settled up $1.90 at $57.11 a barrel.
Gold steadied after touching a two-week high during the session.
U.S. gold futures settled unchanged at $1,474.20.
By Herbert Lash