It was not the bloodbath many had feared, however, even though stocks ended at 5-1/2-year lows. In the overnight hours, selling was so fierce that index futures were halted until after Wall Street's opening bell.
Stock markets tumbled around the globe on Friday. The MSCI's all-country world index dropped 5 percent on more evidence of a sharp slowdown in Europe and a rash of profit warnings worldwide.
Forced liquidations by hedge funds and mutual funds to raise cash to meet large-scale redemptions by investors made the losses even steeper, analysts said.
Energy companies such as Chevron also tumbled as the price of oil slid $3.69 to settle at $64.15 a barrel on bets the global economic slowdown will cut into demand for fuel, despite OPEC's decision to cut output.
"It's been a tumultuous week. There is still a lot of fear out there about whether there is another shoe to drop, whether we have seen the lows," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "Most managers, I think, have been selling positions in order to have cash on hand. That is definitely a factor."
"Overseas markets portrayed a horrible opening -- but we are usually the dog that wags the tail and not the other way around, so some of that extreme fear eased during our session."
Estimates for S&P 500 third-quarter earnings growth fell further, with analysts on average expecting an 11 percent decline -- sharply below the 2.9 percent decline seen at the beginning of October, according to Thomson Reuters data.
The Dow Jones industrial average slid 312.30 points, or 3.59 percent, to 8,378.95, while the Standard & Poor's 500 Index dropped 31.34 points, or 3.45 percent, to 876.77. The Nasdaq Composite Index was down 51.88 points, or 3.23 percent, at 1,552.03. Its session low of 1,493.79 was the Nasdaq's lowest intraday level since May 2003.
For all three major U.S. stock indexes, Friday's session marked their lowest closing levels since the spring of 2003.
It was a painful week, with the Dow falling about 5.4 percent, the Nasdaq down 9.3 percent and the S&P 500 off 6.8 percent.
Technology shares, including iPod maker Apple, fell on concern about the outlook for profits and consumer spending. Microsoft shed 1.6 percent to $21.96 after cutting its profit outlook.
News that Japan's Sony cut its profit forecast in half and Korea's Samsung posted a 44 percent drop in quarterly profit also unsettled investors.
Tech bellwether IBM Inc was among the biggest drags on the Dow, falling 2.7 percent to $82.07, while Apple weighed on the Nasdaq, sliding 1.9 percent to $96.38.
U.S. bank shares fell on fears that losses from bad loans will soar due to a deep global recession, and as National City a large, ailing U.S. bank, agreed to be acquired at a below-market price.
Shares of National City Corp slid 24.7 percent to $2.07 after PNC Financial Services Group Inc said it would buy the Cleveland-based bank for $5.6 billion.
PNC pushed against the current, gaining 3.5 percent to $58.88.
Among energy shares, Chevron lost 4.3 percent to $63.91, while Exxon Mobil gave up 1.9 percent to $69.04.
Data showing the British economy shrank 0.5 percent in the third quarter, the first contraction in 16 years and substantially more than expected, fueled global economic concerns.
Trading was muted on the New York Stock Exchange, with about 1.58 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.65 billion shares traded, above last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by about 5 to 1 and by 3 to 1 on the Nasdaq.
By Kristina Cooke