The Wall Street closed sharply lower on Tuesday after Washington debt battle as investors lost confidence on economic recovery, with the S&P 500 hitting the lowest point for the year.
The Dow Jones industrial average plunged 265.87 points, or 2.19 percent, to 11,866.62.
The Standard & Poor's 500 tumbled 32.89 points, or 2.56 percent, to 1,254.05. It was the seventh down day and the reading was now at its lowest point of the year.
The Nasdaq Composite Index plummeted 75.37 points, or 2.75 percent, to 2,669.24.
U.S. President Barack Obama signed a compromise bill on Tuesday, averting a first-ever debt default in the U.S. history, but it did little to boost the market as investors realized the long-term debt problems were far from settled.
Shortly after the vote, rating institution Fitch Ratings said the agreement to raise the U.S. borrowing capacity meant the risk of a sovereign default was extremely low and commensurate with an AAA rating.
However, investors still believed that a downgrade was very likely.
"The downgrade of bonds will have significant impact on financial markets as all the relevant financial products will have to reprice again and again,"senior trader Joseph told Xinhua.
Meanwhile, recent economic data make investors hesitate to make any further purchase decisions.
The Commerce Department said on Tuesday that consumer spending declined 0.2 percent in June. Excluding falling prices for energy and food, consumer spending would have been unchanged in June.
Incomes jumped 0.1 percent, the weakest growth in income since September, reflecting weak job market.
Data from previously trading day were weak as well. The Institute for Supply Management said on Monday that the manufacturing gauge in July dropped 4.4 points to 50.9 percent in July, the worst reading since July 2009.
The reading was also to far away below the 54 percent market consensus. The sluggish manufacturing activities suggested that the recovery of U.S. economy still had a long way to go.
Reflecting the fear overall, crude prices fell 1.10 dollars, or 1.16 percent to settle at 93.79 dollars a barrel on the New York Mercantile Exchange on Tuesday on investors'concerns.
Gold prices hit record highs on Tuesday as the Bank of Korea bought more gold and as the U.S. Senate passed the debt ceiling deal.
