U.S. stocks sank on Thursday, with the bloodbath engulfing megacap technology names and small companies alike, as President Donald Trump's sweeping tariffs on major U.S. trade partners ignited fears of an all-out trade war and a global economic recession.

Investors fled from risky assets, seeking the safety of government bonds, after Trump slapped a 10 per cent tariff on most U.S. imports and much higher levies on dozens of other countries.

The tariffs, poised to disrupt the global trade order, highlight a stark shift from just a few months ago when the promise of business-friendly policies under the Trump administration propelled U.S. stocks to record highs.

Investors sold positions to reflect the new economic reality, with concerns about how other countries would react to Trump's Rose Garden proclamations.

China vowed retaliation, as did the European Union, which faces a 20 per cent duty. South Korea, Mexico, India and several other trading partners said they would hold off for now as they seek concessions before the targeted tariffs take effect on April 9.

The coming days are expected to be volatile, as events unfold and the full effect of Trump's economic actions start to feed through into the wider economy. The CBOE Volatility index , known as Wall Street's fear gauge, touched a three-week high at 27.30 points.

"I think the market is over-reacting. They are seeing it as one side: it's going to slow down the economy, and put inflationary pressures on," said Jim Elios, chief investment officer of Elios Financial Group.

"But I think this is the first round of negotiations with these nations."

At 01:47 p.m. EDT, the S&P 500 lost 213.52 points, or 3.77 per cent, to 5,457.45 points, while the Nasdaq Composite slumped 857.54 points, or 4.87 per cent, to 16,743.50. The Dow Jones Industrial Average fell 1,223.58 points, or 2.90 per cent, to 41,001.74.

High-flying technology stocks suffered big declines after pushing Wall Street to record highs in recent years.

Apple sank 8.8 per cent, reeling from an aggregate 54 per cent tariff on China, the base for much of the iPhone maker's manufacturing. Nvidia slumped 6.5 per cent and Amazon.com dropped 7.6 per cent.

U.S. stocks have lost ground since Trump took office in January, with the S&P 500 and the Nasdaq dropping 10 per cent from record highs last month, marking a correction, as investors priced in the economic damage from the tariffs.

Traders are ramping up expectations for the Federal Reserve to cut interest rates four times this year, starting with a quarter-point cut in June.

That heightens the significance of Friday's payrolls data and Fed Chair Jerome Powell's speech the same day, which could offer crucial insights into the U.S. economy's health and the future path of interest rates.

Retailers were hit hard, with Nike dropping 12.2 per cent and Ralph Lauren falling 15.9 per cent on a raft of new tariffs on major production hubs including Vietnam, Indonesia and China.

Big banks such as Citigroup and Bank of America , which are sensitive to economic risks, fell more than 9 per cent each. JPMorgan Chase & Co lost 5.6 per cent.

The U.S. small-cap Russell 2000 index tumbled 5.8 per cent, underscoring concerns about the health of the domestic economy.

Exxon Mobil and Chevron fell 4 per cent and 5.1 per cent, respectively, as crude prices slumped 6.7 per cent on the tariffs and OPEC+ speeding up output hikes.

Consumer staples was one of the few bright spots, rising 0.8 per cent. The sector is traditionally considered a defensive play, but it was also buoyed on Thursday by Lamb Weston, which gained 10 per cent after reporting earnings.