At midday, the market was on pace for its worst weekly drop since October 2008, at the height of the financial crisis.
Sharp drops on Friday and Monday erased the gains the Dow and S&P 500 made this year.
Benchmark 10-year notes last fell 4/32 in price to yield 2.8457 percent, from 2.832 percent late on Wednesday.
Analysts have said for months that financial markets were due a correction, after a long period of rising prices.
An early gain in the market quickly evaporated and the selling intensified in the afternoon.
Traders are still braced for more volatility as they try to figure out if the swings of the past week are the start of a deeper correction or just a temporary blip in the U.S. market's nine-year bull run. The indexes reached their latest record highs just two weeks ago. The Dow had previously never lost more than 777 points in a single day, as reported by CNN Money.
To put the day's move in a broader context, the point drop in the Dow (which is a basket of 30 large USA company stocks versus the 500 or so stocks in the S&P) was just 2.1%. It's down 181.13 points, or 6.6 per cent, for the week.
European bond yields also rose, lifted by the prospect of increased fiscal spending after Wednesday's coalition government deal in Germany.
Stocks began to fall in early trading and their losses grew throughout the day.
Eastern Time. The Dow gained 282 points, or 1.2 percent, to 24,142. The S&P 500 index, a broader market gauge, has also slipped into a correction, as it is down 10.2 now. Chipmaker Nvidia (NVDA) added $14.56, or 6.7 percent, to $232.08.
"The fact that Monday's lows were breached (on Thursday) signals more trouble ahead and rallies are likely to give way to rising bond yields", said Peter Cardillo, chief market economist at First Standard Financial in NY.
"You continue to have investors rerating stocks based on higher inflation and higher interest rate expectations", said Michael Arone, chief investment strategist at State Street Global Advisors in Boston. Schutte said that as central banks stop propping up the market, trading will probably be more volatile in the next few years. The S&P 500 came down the same percentage, plummeting to close at 2,581 on Thursday.
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