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|Traders work on the floor at the New York Stock Exchange. (Photo: AFP/Bryan R Smith)|
About 25 minutes into trading, the Dow Jones Industrial Average had fallen 2 per cent, around 500 points, to 24,528.26.
The broad-based S&P 500 also sank 2 per cent to 2,646.13, while the tech-rich Nasdaq Composite Index shed 1.9 per cent to 7,021.08.
The drops came after the arrest of Huawei executive Meng Wanzhou in Canada for extradition to the United States in an investigation into suspected Iran sanctions violations by the telecom giant.
Other headwinds facing stocks include worries over slowing US growth and weakness among petroleum-linked stocks amid a pullback in oil prices as OPEC members debated a production cut.
The Meng arrest stirred tensions just as the United States and China agreed to a ceasefire in their trade spat while negotiators seek a deal within three months.
After rallying on Monday following the US-China ceasefire on tariffs announced over the weekend, US markets had fallen sharply on Tuesday on scepticism about the agreement.
US markets were closed on Wednesday because of the funeral of former President George H W Bush but resumed their downward move on Thursday following the Meng arrest.
The arrest "has fuelled a heightened sense of angst that it will potentially stand in the way of the US and China reaching a trade deal within their prescribed 90-day window," said Briefing.com analyst Patrick O'Hare.
"Moreover, it has piqued worries that China could take some retaliatory action in the interim against US companies doing business in China."