The revived possibility of a shutdown worsened the downbeat mood on markets after the Federal Reserve announced another interest rate hike on Wednesday and made only subtle adjustments to the course of monetary policy tightening next year despite rising worries about global growth and a big pullback in the stock market.
The Dow Jones Industrial Average fell 379 points, or 1.6 percent, to 22,950.
The benchmark S&P 500 index has slumped 10.6 percent this month and is nearly 16 percent below the peak it reached in late September.
Wall Street fell in volatile trading on Friday, after a few failed attempts at a rally, led by a drop in technology and other high-growth sectors, while defensive stocks rose amid concerns of slowing growth and a looming government shutdown.
United States stocks closed lower on Friday as investors digested the latest economic data, speech from a central bank official, and the fact that the government is on the verge of a partial shutdown.
The Russell 2000 gave up 118.73 points, or 8.4 percent. That hasn't happened yet, but investors fear it will. Inversions are often taken as a sign a recession is coming, although it's not a flawless signal and when recessions do follow inversions in the yield curve, it can take a year or more.
Many investors are growing anxious that corporate profits - which drive stock market gains - are poised to weaken.
"Technology is part of the same story as the overall market", said Scott Wren, global equity strategist at the Wells Fargo Investment Institute.
The Dow lost 464 points, or 2 percent, to 22,859.
The S&P 500 index lost 14 points, or 0.6 percent, to 2,491. The yield on the 10-year Treasury finished today nearly a half percent lower than its recent October peak. The Nasdaq fell 48 points, or 0.8 percent, to 6,478.
U.S. President Donald Trump has refused to sign legislation to fund the U.S. government unless Congress authorizes money for a Mexico border wall, thus risking a partial federal shutdown on Saturday. The bond-buying has the effect of sending long-term bond yields lower, which reduces interest rates on mortgages and other kinds of long-term loans. The S&P 500 is on track for its first annual loss in a decade. Those worries are reinforced by a 30 per cent-plus decline in world oil prices since October.
Brent Crude Oil prices also dropped to $46.16 after falling 2.5 percent.
The stock markets in France, Germany, Britain, Italy, Portugal, Spain, Tokyo and Hong Kong also fell. Seoul's Kospi shed 0.9 percent.
Oil prices, which slid just over 4 percent on Thursday, tumbled to their lowest since the third quarter of 2017. The euro fell back to $1.1369 from $1.1469 and the British pound slipped to $1.2639 from $1.2671.