Crude has been particularly sensitive to the coronavirus pandemic, owing to fears that a sharp drop-off in economic activity will deal a heavy blow to the transport sector, which accounts for 40% of global oil demand.
The central bank also slashed its benchmark interest rate close to zero on Sunday for the first time since the financial crisis. The underlying S&P 500 rose 6% Tuesday.
On Tuesday, reports emerged the White House is mulling a stimulus package of more than $1 trillion, including direct payments to Americans and relief to small businesses and the airline industry.
The package would be mostly focused on adding liquidity to the economy through a payroll tax cut or other mechanism.
The Senate passed a bill to expand paid leave and unemployment benefits in response to the coronavirus pandemic.
While equity futures were under pressure, investors moved into the safety of gold.
Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis, said the market is in "full panic mode". "It's a start, but there's still a lot to be determined".
Investors say they need to see the number of infections slow before markets can find a bottom. Treasury Secretary Steven Mnuchin late on Tuesday reiterated the administration will keep markets open, while suggesting trading hours could be shortened at some point.
The Dow Jones Industrial Average plunged 2,997 points, or 12.9%.
Trading was unsettled around the world.
On Tuesday, European stocks swung from gains to losses and back to gains. The Dow was even lower earlier in the day, at one point falling to levels unseen since December 2016.
Overall, the S&P 500 has slumped more than 30% from its Feb 19 peak and ended a bull market that began in 2009.
A similar tumble in the S&P 500 had triggered a marketwide circuit breaker on Wednesday for the fourth time in less than two weeks.
The virus has spread so quickly that its effects haven't shown up in much USA economic data yet. A separate report a day earlier showed manufacturing in the state of NY contracting.
The Commerce Department reported Tuesday that the February drop in sales followed a solid 0.6% gain in January.
In recent days the major global central banks have been attempting to take action against the effects of the spread of the coronavirus, which is now disrupting the day-to-day life of the different countries and bringing down the economic performance of several global and local industries as well as disrupting the global supply chains.
With all the uncertainty and early evidence that China's economy was hit much harder by the virus than earlier thought, they now see "a severe global recession occurring in the first half of 2020".
That excitement quickly turned to fear after the 10-year U.S. Treasury yield spiked to over 1.05 per cent overnight.
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