Sun Microsystems said it would trim its workforce by 5,000 to 6,000 jobs. In Washington, Freddie Mac (NYSE:FRE) reported its liabilities exceeded its assets by $13.8 billion. The company requested $14 billion from the U.S. Treasury -- part of a deal made when the government seized control of Freddie Mac in September.

By close, the Dow Jones industrial average lost 3.47 percent, or 337.94 points, to 8,497.94. The Standard & Poor's 500 fell 4.17 percent, 38.00 points, to 873.85. The Nasdaq composite index lost 79.85 points, or 5 percent, to 1,516.85.

On the New York Stock Exchange, 623 stocks advanced and 2,447 declined on a volume of 9.7 billion shares traded.

The benchmark 10-year U.S. Treasury bond rose 31/32 to yield 3.735 percent.

The dollar was mixed. The euro fell to $1.2691, compared to $1.2853 Thursday. Against the Japanese yen, the dollar fell to 97.10 yen, from 97.82 yen Thursday.

In Tokyo, the Nikkei average rose 2.72 percent, up 223.75 points to 8,462.39.

The FTSE 100 index in London rose 1.53 percent, up 63.76 points to 4,232.97.