Analysts said the crash rekindled memories of the Sept. 11 terror attacks that rocked the nation.
The blue-chip Dow Jones industrial average, which rose 20.48 points Friday, was down 171.10 points, or 1.81 percent, to 9,436.90. The tech-heavy Nasdaq composite index, which added 0.71 points in the previous session, was down 25.85 points, or 1.43 percent, to 1,802.63.
The broader New York Stock Exchange composite index was down 7.43 to 563.18 while the Standard & Poor's 500 index was down 16.30 to 1,104.01.
The American Stock Exchange composite index was down 7.95 points to 818.89 while the Wilshire Smallcap Index was down 4.56 to 671.28.
Big Board volume amounted to an estimated 445.85 million shares.
Analysts said stocks fell on news that an American Airlines Airbus A-300 departing from JFK Airport en route to Santo Domingo crashed minutes after taking off. There were 246 passengers and nine crew members aboard.
The cause of the crash, just two months after terrorist attacks on New York and Washington, was not immediately known, but some investors, worried that it might have been the result of a terrorist attack began selling immediately to preserve profits made recently.
Experts said the market was clearly jittery, with stocks starting to regain some ground but then reversing themselves and turning lower again.
Meanwhile, with economic and business news light Monday due to the Veterans Day holiday in the United States, the week will bring the latest reading on the key retail sector.
A government report on Wednesday will show retail sales data for October, while major retailers such as Wal-Mart Stores start to report third quarter earnings data.
The week ends with a report on prices paid by consumers, the Consumer Price Index, which is the government's main inflation gauge.
Last Friday's report on wholesale prices for October showed the largest drop on record.
Meanwhile, the U.S. Treasury market was closed Monday for the Veterans Day holiday. Trading will resume on Tuesday.
In Europe, stock prices closed lower in cautious trading in London, Frankfurt and Paris after Wall Street opened with sharp losses, rocked by news of a passenger jet crash in New York.
The London International Stock Exchange's blue-chip FTSE-100 index lost 97.2 points, or 1.85 percent, to 5,147.0. The blue-chip German DAX index fell 154.62 points, or 3.15 percent, to 4,755.45 and the French CAC-40 index fell 137.70 points, or 3.05 percent, to 4,376.58.
Earlier in Asia, prices on the Tokyo Stock Exchange ended lower, pressured by continued pessimism about the country's flagging economy. Japan's blue-chip Nikkei Average of 225 selective issues, which lost 216.08 points Friday, fell another 134.15 points, or 1.31 percent, to 10,081.56 after posting modest gains early in the session.
Analysts said stocks initially rose as investors bid up blue-chip issues.
The Nikkei also got an early boost from Wall Street's continued advance on Friday, when the two main indexes surpassed levels traded before the Sept. 11 terrorist attacks in the United States.
However, prices came under pressure after Prime Minister Junichiro Koizumi told parliament that the nation needs to endure two to three years of sluggish economy while the government pushes through the structural reforms needed for longer-term, sustainable growth.
Elsewhere in Asia, prices on the Taiwan Stock Exchange ended higher after the World Trade Organization approved Taiwan's entry, only 24 hours after China. The benchmark Weighted rose 48.85 points, or 1.18 percent, to 4,172.63.
Taiwan, with world's 14th largest trading economy, on Sunday won approval to join the global trade club after seeking entry for 12 years.
Taiwan's state media the Central News Agency quoted Morris Chang, the chairman of Taiwan Semiconductor Manufacturing as saying entry into the WTO would have a greater impact on China than on Taiwan.
China's WTO entry news, however, failed to boost prices on the Hong Kong Stock Exchange as investors pocketed profits after the widely-expected approval was finally announced. The blue-chip Hang Seng Index lost 16.80 points, or 0.16 percent, to 10,592.45, after moving in a narrow range throughout the session.
Prices ended slightly higher on the South Korean Stock Exchange. The Kospi composite index rose 7.73 points, or 1.34 percent to 584.48.
Elsewhere around the region, prices ended slightly higher on the Australian Stock Exchange. The key All Ordinaries Index added 17.30 points, or 0.54 percent, to 3,238.70.