Big banks were the top decliners; a day after Moody's lowered debt ratings for large lenders.
Shares of Citigroup Inc and Morgan Stanley hit a 52-week low at the market's open. Citigroup fell more than 4 percent to USD 24.25 and Morgan Stanley dipped more than 6 percent to USD 12.99.
The Select Sector Financial Sector SPDR funds were off more than 3 percent, also a 52-week low.
"A lot of people were hoping for the Fed to say we are close to recession but not really in it and were expecting an aggressive action out of the Fed. The market didn't get this," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
The market's mood has turned decidedly negative since the Fed statement on Wednesday, which detailed additional stimulus measures but also focused on the weak economy.
Investors are taking a more pessimistic view, and they question the ability of euro zone governments to control the sovereign debt crisis and reverse sluggish growth.
The Dow Jones industrial average fell 355.86 points, or 3.20 percent, at 10,768.98. The Standard & Poor's 500 Index was down 38.51 points, or 3.30 percent, at 1,128.25. The Nasdaq Composite Index was down 79.97 points, or 3.15 percent, at 2,458.22.
FedEx Corp shares fell 10.4 percent to USD 64.93 after the world's No. 2 package delivery company reported higher quarterly profit that slightly beat forecasts but pared its outlook for a full year, citing fuel prices and moderate global economic growth.
In the latest economic data, Americans filed fewer new claims for jobless benefits last week, but the decline was not enough to dispel worries the economy was close to falling back into a recession.
The Fed announced a program Wednesday to sell USD 400 billion of short-term Treasury bonds and buy the same amount of longer-term US government debt in a bid to lower long-term borrowing costs and bolster the housing market.
But investors were more focused on the Fed's wording that there were "significant" risks to the economy. and
Elsewhere, data showed China's manufacturing sector contracted for a third straight month in September. The world's second-biggest economy is vulnerable to fading demand from the United States and Europe, its biggest export markets.