The Dow Jones industrial average skidded 186 points, and all the major indexes fell at least 2 percent. The Nasdaq composite index was hardest hit, dropping 2.8 percent, but it also had the biggest advance as Wall Street rallied this year.

A shudder in China's main stock market touched off a wave of selling that spread to Europe and then the United States. A slide in quarterly profits at home-improvement retailer Lowe's Cos. only added to worries that an improvement in the economy was far off.

The slide was steep but felt more controlled than the plunges of the last year because stocks ended off their worst levels and because analysts have been calling for a retreat after the Dow and Standard & Poor's 500 index raced up 15 percent in only five weeks.

The Shanghai stock market tumbled 5.8 percent yesterday as investors worried that the Chinese government would tighten bank lending policies. Investors outside China have been hoping that strengthening there would spill over to other economies.

Worries grew when Lowe's said consumers were putting off big purchases. That's troubling because consumer spending accounts for more than two-thirds of U.S. economic activity.

Some investors used to seeing a quick bounce-back in stocks have underestimated how difficult the recovery could be, even though many analysts have warned that it could take well into 2010 for the economy to regain strength.

The Dow fell 186.06, or 2 percent, to 9,135.34, its lowest close since July 29. The Dow had been down almost 205 points at its low of the day.

The broader S&P 500 index, which is the basis for many investments like mutual funds, fell 24.36, or 2.4 percent, to 979.73. Last week, it was up 49.7 percent from a 12-year low of 676 in early March.

The Nasdaq fell 54.68, or 2.8 percent, to 1,930.84.

It was the biggest slide for major stock indexes since July 2, when a weak employment report fanned worries about the economy and pushed stocks down more than 2.5 percent.

Many analysts say stocks have piled on gains too quickly.

"We have come an awful long way. To not expect a sell-off after the degree of increase - I think you're dreaming," said John Merrill, chief investment officer of Tanglewood Wealth Management in Houston.

The Chicago Board Options Exchange's Volatility Index, also known as the market's fear index, surged 14.9 percent, its biggest one-day increase since April. The VIX stands at 27.9 and is down 30 percent in 2009. Its historical average is 18 to 20. It hit a record 89.5 in October at the height of the financial crisis.

Japan's Nikkei stock average fell 3.1 percent; investors weren't satisfied by news that the country had emerged from recession in the second quarter. Britain's FTSE 100 fell 1.5 percent, Germany's DAX index lost 2 percent, and France's CAC-40 fell 2.2 percent.

Among stocks, Lowe's fell $2.36, or 10.3 percent, to $20.47. Consumer staples stocks fared best as investors looked for safety. Coca-Cola Co. rose 23 cents to $48.70.

The dollar rose against other major currencies, while gold prices fell.

The Russell 2000 index of smaller companies fell 15.72, or 2.8 percent, to 548.18.