The US dollar surged on to its highest point in 16 months yesterday, against a basket of currencies and stocks fell amid concern about political risks in Europe, while a drop in Apple shares added pressure to US equities and tech shares.
Major US stock indexes dropped more than one per cent in initial trading, weighed down by a 4.6 per cent slump for index heavyweight Apple, after an iPhone part supplier cut its outlook.
In Europe, fears about a no-deal Brexit and a growing rift over Italy's budget put pressure on the euro and the pound. The dollar also gained strength as investors built bets on a US Federal Reserve interest rate increase next month.
"Rising global uncertainty and a widening US yield differential with other economies provide support, but an elevated valuation may constrain further gains," Richard Turnill, global chief investment strategist with BlackRock, wrote in a research note.
The dollar index rose 0.57 per cent, with the euro down 0.74 per cent to $1.125.
In stocks, the Dow Jones Industrial Average fell 333.07 points, or 1.28 per cent, to 25,656.23, the S&P 500 lost 34.97 points, or 1.26 per cent, to 2,746.04 and the Nasdaq Composite dropped 172.45 points, or 2.33 per cent, to 7,234.45.
Apple shares fell as the main supplier for its Face ID technology, Lumentum Holdings Inc, slashed revenue and profit forecasts, citing reduced orders from a major customer. Lumentum shares tumbled 31.3 per cent and shares of other Apple suppliers also dropped.
The S&P 500 technology sector, a main driver of the long US bull run in stocks, tumbled 3.0 per cent.
Tech stocks were also weak in Europe as the pan-European STOXX 600 index lost 0.84 per cent. MSCI's gauge of stocks across the globe shed 1.19 per cent, on pace for its third straight session of declines.
Oil prices rose after Saudi Arabia said OPEC and its partners believed demand was softening enough to warrant an output cut of 1 million barrels per day next year.
US crude rose 1.08 per cent to $60.84 per barrel and Brent was last at $70.95, up 1.1 per cent on the day.
"Oil seems to be causing some jitters right now because they have been volatile," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin.