A new UN resolution set the markets on edge

The US, Britain and Spain put forward a second resolution to the United Nations Security Council which could set the stage for war.

Sentiment was also hit after number of brokerages lower their earnings forecasts for leading US companies, especially in the transport industry, because of the high price of oil.

Some retailers' cuts in their February sales forecast.

The Dow Jones industrial average fell 159.9 points, or 1.99%, to close at 7,858.24 while the tech-based Nasdaq Composite index dropped 26.7 points, or 1.98%, to 1,322.4.

Retail gloom

Shares in retailers were under pressure after J.C. Penney and Federated Department Stores cut their February sales forecasts.

Wal-Mart lost $1.26 to $47.64, Federated Department Stores dropped 76 cents to $24.82, and J.C. Penney declined 95 cents to $19.39.

Meanwhile, Dutch supermarket group Ahold contributed to the downbeat mood after it reported accounting irregularities which sent their US-listed stocks plunging 61% to $4.16 a share.

The retail giant also said two of its top executives would resign.