The Dow Jones industrial average (INDU) tumbled 171 points, or 1.5%, and the S&P 500 (SPX) lost 18 points, or 1.6%. The Nasdaq composite (COMP) dropped 48 points, or 2%.
"The market's had a few good days recently, so we're going to see a lot of give and take," said Art Hogan, managing director of Lazard Capital Markets.
Investors also grew anxious about Europe, amid rumors that ratings agencies may downgrade the credit rating in Germany -- Europe's largest economy.
"I wouldn't put much stock into [the rumor], because ratings agencies would look at France before they even consider downgrading Germany. But there is a lot of nervousness in the market and that's driving sentiment," said Michael Hewson, market analyst at CMC Capital Markets in London.
Standard and Poor's, Fitch Ratings and Moody's Investors Services said Thursday that they did not have any updates to their AAA-rating on Germany.
This week's three-day stock advance in the U.S. has been attributed to investor hopes that Fed chief Ben Bernanke will announce steps on Friday to spur the faltering economy at the Kansas City Fed's annual retreat in Jackson Hole, Wyo.
The dollar rose against the euro, the British pound and Japanese yen.
Oil for October delivery rose 14 cents to settle at $85.30 a barrel.
Gold futures for December delivery rose $5.90 to settle at $1,763.20 an ounce. Earlier, gold prices fell almost 3% to $1,705.40 an ounce, and prices tumbled 5% Wednesday. The weakness comes after a powerful rally in the gold market that sent prices skyrocketing above $1,900 an ounce earlier this week.
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