China's Shanghai composite dived 5.8% -- the most this year -- after Ping An Insurance, the nation's No. 2 insurer, said first-half profit dropped 45%. Yunnan Copper Industry reported a first-half loss and said it doesn't see a recovery yet.
Also, foreign direct investment in China sank 35.7% in July vs. a year earlier, the 10th straight decline, the Commerce Ministry said.
Japan's Nikkei 225 fell 3.1% even after the world's No. 2 economy returned to growth in April-June, joining Germany and France as the only Group of Seven economies to pull out of recession.
Japan's GDP grew at a 3.7% annual rate, the best since January-March 2008, but that was a bit less than expected.
The selling wave continued into Europe, where stocks fell roughly 2% and carried over to New York.
Home improvement chain Lowe's (NYSE:LOW - News) said Q2 EPS fell 20% vs. a year earlier, missing forecasts. Same-store sales dived 9.5% as consumers put off remodeling. Lowe's also pared its North American expansion plans for this year and 2010.
"Cautious consumers remain reluctant to take on discretionary projects until signs of economic improvement are more evident," CEO Robert Niblock said in a statement.
Lowe's shares tumbled 10%. The S&P 500 sank 2.4% and the Nasdaq 2.8%.
"What we're seeing is a re-emergence of concerns about the consumer's ability to support an economic recovery," said Richard DeKaser, president of Woodley Park Research.
More positively, Niblock noted "some indications that a bottoming process in housing and the broader economy is under way."
An index of New York-area manufacturing showed growth for the first time since April 2008, jumping to 12.1 in August from -0.6 in July, the New York Federal Reserve said. Economists expected a reading of 3.
But investors, after focusing on unexpectedly strong earnings reports, are stressing the negative -- weak sales and a weak consumer.
Stock markets were due for a pullback, many analysts say.
The Shanghai index, down 17% since Aug. 4, is still up 58% this year.
"We anticipated a sell-off," said Linda Duessel, equity strategist at Federated Investors. "What they (investors) really need to understand and believe in is, yes, there is a global recovery going on. We need to put together more data points about that."
Reports last week showed that retail sales unexpectedly fell in July while a consumer sentiment gauge plunged amid high unemployment and falling wages.
The U.S. economy shrank at a 1% rate in Q2 following a 6.4% plunge in Q1.
Many economists expect a return to growth in the current quarter as companies stop or slow inventory and investment cuts.
But they fret about whether government stimulus can sustain a recovery while consumers -- 70% of U.S. economic activity -- retrench. Only about 10% of the $787 billion package has been spent.
"Right now with consumer spending, maybe that's not going to come back. If that doesn't happen, can the government make up for it, and how long is it going to last?" said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com.
