Sentiment weakened with the run of US economic data failing to meet expectations.
Housing data, jobs and manufacturing data all disappointed. Meanwhile, talk by Fed officials of easing monetary stimulus kept investors on edge.
The Dow fell 0.3%, while the S&P500 fell 0.5% and the Nasdaq dropped 0.2%, although share markets were due for a correction.
US treasuries rose (yields fell) for a second day, reacting to the soft economic data.
The signs that the US economy was losing some momentum with subdued inflation lessened the chance that the Federal Reserve would scale back its bond purchases.
The US dollar slipped against most currencies early on, but recovered on comments by a Fed official.
President of the San Francisco Fed, Williams said that the US could begin easing monetary policy this summer and end its bond purchases by late this year if the labour market improved further.
The Australian dollar fell against the US dollar as risk appetite softened and continues to be weighed down by the prospect of the end of Federal Reserve quantitative easing.
Most commodity prices fell as soft US economic data raised concerns about future demand.
Gold prices continued to slip falling to a four-week low.
No domestic data was released.
Inflation in April was confirmed at 1.2% in the year, indicating that price pressures remain well contained.
The Japanese economy grew by a solid 0.9% in the March quarter and at an annualised rate of 3.5%. It was the fastest pace in a year.
Further, growth in the December quarter was revised up to 0.3% (previously flat).
The pickup was driven by private consumption and exports.
This suggest that the Bank of Japan's new aggressive easing policy, which has placed downward pressure on the yen and boosted share markets, is helping to support growth.
Other data also pointed to a recovery in the Japanese economy. Industrial production in March was revised upwards to 0.9%, following the previously reported 0.2% increase.
The annual rate remains in decline falling 6.7% in the year to March, but an improvement from the previously reported 7.3%.
The NZ business PMI rose from 53.4 to 54.5 in April, suggesting further expansion in manufacturing.
New orders, production and deliveries sub-indices improved, while employment and stocks declined.
Consumer prices fell 0.4% in April, which saw the annual rate of inflation slip from 1.5% to 1.1%, further below the Fed's 2 percent inflation target.
Core prices, excluding food and energy however, rose 0.1% in the month.
Low inflation may hose down talk of an early wind down of quantitative easing by the Fed, although a report in the Wall Street Journal said that the Fed wasn't concerned about falling inflation because inflation expectations were stable.
Housing starts slumped 16.5% in April, with the drop exceeding consensus expectations for a 6.4% fall.
The annualised rate of 853k starts was the lowest in five months.
However, building permits surged 14.3% in April, which suggests that the sharp drop in starts in April is likely reflective of month-to-month volatility.
Initial jobless claims for the week ending 11 May rose from a revised 328k to 360k, greater than consensus expectations of 330k.
The Philadelphia Fed survey fell back into negative territory in May to a reading of -5.2 after a reading of 1.3 in the previous month.
It adds to other regional surveys pointing to a softening in manufacturing activity.
Please read the disclaimer below:
The information contained in this report (the Information) is provided for, and is only to be used by, persons in Australia. The information may not comply with the laws of another jurisdiction. The Information is general in nature and does not take into account the particular investment objectives or financial situation of any potential reader. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the Information without first seeking expert financial advice. For persons with whom St.George has a contract to supply Information, the supply of the Information is made under that contract and St.George's agreed terms of supply apply. St.George does not represent or guarantee that the Information is accurate or free from errors or omissions and St.George disclaims any duty of care in relation to the Information and liability for any reliance on investment decisions made using the Information. The Information is subject to change. Terms, conditions and any fees apply to St. George products and details are available. St.George or its officers, agents or employees (including persons involved in preparation of the Information) may have financial interests in the markets discussed in the Information. St.George owns copyright in the Information unless otherwise indicated. The Information should not be reproduced, distributed, linked or transmitted without the written consent of St.George.
Update your news preferences and get the latest news delivered to your inbox.