The largest drop in the inflation rate in 61 years indicated the U.S. economy had slowed dramatically. Housing starts were also down, off 4.5 percent in October compared with September.

Among active stocks, Citigroup Inc. (NYSE:C) shares fell close to 23 percent, General Electric Co. was down 8.72 percent, while Bank of American Corp. slid 8.72 percent.

By close, the Dow Jones industrial average was off 427.47 points, or 5.07 percent, to 7,997.28. The Standard and Poor's 500 fell 6.12 percent, 52.54 points, to 806.58. The Nasdaq composite index lost 96.85 points, 6.53 percent, to 1,386.42.

On the New York Stock Exchange, 187 stocks advanced and 2,998 declined on a volume of 7.2 billion shares traded.

The 10-year U.S. Treasury bond rose 1 12/32 to yield 3.364 percent.

The euro fell to $1.252, compared to $1.2617 Tuesday. Against the Japanese yen, the dollar fell to 95.90, from 96.81 yen Tuesday.

In Tokyo, the Nikkei average fell 55.19 points to 8,273.22, down 0.66 percent.

The FTSE 100 index in London fell 202.87 points to 4,005.68, off 4.82 percent.