Technology stocks led a selloff in equities after Apple, blaming weaker iPhone sales in China, late on Wednesday cut its revenue forecast for the first time in nearly 12 years. Apple's U.S.-listed shares closed down 10 percent.

That heightened concerns that sluggish global growth may be reflected in the United States, where corporate earnings season is set to kick off in a few weeks. Some market watchers fretted that U.S. corporate earnings may recede this year, leading to a further downturn in equities.

"With the friction in the global economy, the market has to discount the multiples we'd previously been paying," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. "Investors want to pay lower prices with the increased level of risk out there."

Survey data from the Institute for Supply Management showed U.S. factory activity slowed more than expected in December, sending stocks on Wall Street lower. All three major U.S. stock indexes ended down more than 2 percent.

As stocks were roiled, U.S. Treasury prices rose and their yields tumbled. The two-year Treasury yield briefly dropped below 2.4 percent to reach parity with the federal funds effective rate for the first time since 2008. The market move indicated that investors believe the Federal Reserve's plans to continue tightening monetary policy may be too aggressive given signs of an economic slowdown.

"When the two-year yield is up, it’s constructive for equities, because it’s signalling that the economy is doing well, that the market can absorb the Fed moving towards rate normalization," said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. "The two-year yield is telling you a different story now."

Benchmark 10-year notes last rose 31/32 in price to yield 2.5517 percent, from 2.661 percent late on Wednesday.

In the U.S. equity market, the Dow Jones Industrial Average fell 660.02 points, or 2.83 percent, to 22,686.22, the S&P 500 lost 62.14 points, or 2.48 percent, to 2,447.89 and the Nasdaq Composite dropped 202.43 points, or 3.04 percent, to 6,463.50.

MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.26 percent.

CURRENCIES

Apple's news also unsettled the currency markets, with the safe-haven yen climbing against the dollar. The dollar was last 1.19 percent lower against the yen at 107.57 yen.

Earlier, in what some market watchers called a "flash crash," the yen rose as much as 4.4 percent versus the dollar after a flurry of automated orders triggered a massive move in Asia, where trade was thin with Japanese participants still away for the New Year holiday.

The dollar index <.DXY>, measuring the greenback against a basket of six other currencies, was last down 0.6 percent. The euro rose 0.48 percent against the dollar to $1.1396.

Keeping with the risk-off theme, gold prices hit a 6-1/2-month peak. Spot gold last added 0.7 percent to $1,293.96 an ounce.

Copper prices dropped to an 18-month low and ended 1.8 percent lower at $5,736 a tonne.

Brent crude futures rose $1.04, or 1.89 percent, to settle at $55.95 a barrel. U.S. crude futures rose 55 cents to $47.09 a barrel, a 1.18 percent gain.


(For graphic on Currency Flash Crash, click

(Reporting by April Joyner; Additional reporting by Andrew Galbraith, Josephine Mason, Helen Reid and Saqib Iqbal Ahmed; Editing by Bernadette Baum, Chizu Nomiyama and Dan Grebler)

By April Joyner