The Dow Jones industrial average she some 5.5 per cent, to 10,809.
It is the first time the Dow has fallen below 11,000 since November.
The 635-point drop is the biggest since December 2008.
Cary Leahey, Senior Economist with Decision Economics says market selloff is not just a reaction to the downgrade of the U.S.
"The market's reaction was in some sense an overreaction because it didn't happen by itself, it happened following a string of very disappointing economic reports. So people are selling today not just because of the downgrade, but because the U.S. economy looks a lot less promising today than it did one week ago or three weeks ago."
The S&P 500 has lost 6.7 per cent, at 1,119.
The Nasdaq got hit even worse, down 6.9 per cent to close at 2,357.
More than 69 stocks fell for every one that rose on the New York Stock Exchange.
Trading volume was also very heavy at 9.7 billion shares.
Meantime, Mexico's stock index closed down 5.9 percent.
Brazil's benchmark Bovespa index retreated as much as 8 percent, in a battering that hit every stock on the index.
Argentina's benchmark stock index ended down more than 10 percent.
Earlier in Europe, the Stoxx 600 Index ended the day with a 4.1 per cent slide, despite the European Central Bank's announcement that it's going to buy Italian and Spanish bonds.
Robert Halver is a trader for the Baader Bank.
"The financial markets are still waiting for an answer of this insecurity coming up from the European policy. We are still waiting but I hear nothing."
The Frankfurt stock exchange lost 5 percent in Monday trading.
Britain's FTSE 100 closed down 3.4 percent, hitting a 13-month low.
