Wall Street had its worst day since the 1987 stock market crash on Wednesday,

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as bleak economic data fed worries that all the efforts to unlock credit markets may not stave off a severe recession.

Federal Reserve Chairman Ben Bernanke added to those concerns when he said the economy faced a "significant threat" from paralyzed credit markets.

Dismal monthly U.S. retail sales set the tone for the session, dropping the most in more than three years, while a measure of New York state manufacturing hit its lowest level since the index started in 2001.

The Nasdaq has now wiped out all of its gains from Monday's 11 percent rally, while the benchmark S&P 500 is up only about 1 percent from Friday's close.

Wednesday's data intensified recession fears, as did the Federal Reserve's Beige Book report, which showed economic activity weakened across the United States in September as businesses revised capital investments and consumers curtailed spending.

Shares of companies considered economic bellwethers, such as industrial conglomerate Caterpillar Inc, fell sharply. Caterpillar's shares slid over 11 percent.

Fears of recession knocked commodities lower, with Exxon Mobil tumbling 14 percent as the price of oil fell.

"Retail sales spooked investors this morning and has increased the near-term risk of a broad-based recession," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

The Dow and the benchmark S&P 500 suffered their worst one-day percentage drops since 1987.

The Dow Jones industrial average .DJI slid 733.08 points, or 7.87 percent, to 8,577.91, while the Standard & Poor's 500 Index .SPX tumbled 90.17 points, or 9.03 percent, to 907.84.

The Nasdaq Composite Index .IXIC sank 150.68 points, or 8.47 percent, to 1,628.33.

The broad Dow Jones Wilshire 5000 closed down 905 points, or 8.99 percent, at 9,160.43, representing a paper loss for the day of approximately $1.1 trillion.