Treasuries also dropped in price after a disappointing sale of new government debt, while gains in the euro prompted a pullback in European stock markets.

The Nasdaq was the biggest loser on Wall Street, falling more 2 percent, after a modest rise in equities on news of a deal between Kraft Foods and Heinz Co to create North America's third-largest food company gave way to a wave of selling .

Stocks were stung by data showing unexpectedly weak U.S. durable goods orders. Losses accelerated after the benchmark S&P 500 fell below a technical support level near 2,085.

The Commerce Department data showed business investment spending plans fell for a sixth straight month in February, news that could lead economists to lower their first-quarter U.S. growth estimates and cause the Federal Reserve to delay interest rate hikes.

"The dollar strength can sap earnings growth, but if you continue to see soft economic data here, a confirmation of decelerating growth, that will certainly affect the market," said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.

The Dow Jones industrial average <.DJI> ended off 292.6 points, or 1.62 percent, to 17,718.54, the S&P 500 <.SPX> lost 30.45 points, or 1.46 percent, to 2,061.05, and the Nasdaq Composite <.IXIC> dropped 118.21 points, or 2.37 percent, to 4,876.52.

The semiconductor index <.SOX> slumped 4.6 percent while the biotech index <.NBI> slid 4.1 percent.

Kraft shares climbed 35.6 percent to close at $83.15.

U.S. Treasury debt prices initially gained on the weak durable goods data, but reversed to losses as a government auction of $35 billion of five-year notes drew tepid demand.

The benchmark 10-year U.S. Treasury note was down 11/32 in price to yield 1.9198 percent.

The pan-European FTSEurofirst 300 index <.FTEU3> of top companies closed off nearly 1 percent as the euro rose, in part because of data showing business in Germany was up.

Germany's Ifo index rose for a fifth successive month to its highest level since July, suggesting growth in Europe's largest economy rebounded again in the first quarter of 2015.

Euro strength hit the exporter-heavy German DAX index <.GDAXI>, prompting some profit-taking, analysts said.

The single currency was last at $1.0963, up 0.4 percent on the day and rising toward Tuesday's peak of $1.1029.

The dollar index <.DXY>, which measures the dollar against a basket of six major currencies, slipped 0.25 percent to 96.956. The yen was up 0.2 percent, at 119.44 to the dollar .

The weaker dollar helped lift Brent crude oil , which settled up 2.5 percent at $56.48 a barrel, having fallen earlier on mounting evidence that China's strategic oil reserves may be nearly full and with U.S. reserves also ballooning. U.S. crude settled up 3.6 percent at $49.21.

Gold was up and neared a 2-1/2-week high just over $1,200 an ounce on growing expectations the Federal Reserve will not raise rates until September. Spot gold was last at $1,195.90.

(Additional reporting by Rodrigo Campos in New York; Editing by Dan Grebler and Leslie Adler)

By Michael Connor