The biggest fall in consumer spending since 1981 saw US economic growth shrink by 6.2% in the final three months of 2008, far sharper than forecast.
Plunging exports and significant cuts in business spending dragged the figure below the US government's earlier estimate of 3.8%.
The Dow Jones immediately plunged 1.5% after opening, taking the index to its lowest intraday level since 1997, before recovering slightly. At shortly after 3pm GMT, the Dow Jones stood at 7,106 after earlier hitting 7,041.
In the UK, the FTSE 100 also felt the impact. After a topsy-turvy morning session, the index plummeted to its lowest level in three months with Lloyds Banking Group, fresh from announcing a £10.8bn loss for HBOS in 2008, the biggest loser.
The world's largest economy also contracted at a 0.5% annual rate in Q3, meaning today's figures represent the first back-to-back contraction in almost 20 years in the US.
In 2008 as a whole, the economy grew by 1.1%, the Commerce Department said, the slowest pace since 2001.
Exports dropped by 23.6% in the three months between October and December, down from 19.7%, while consumer spending, which accounts for about two-thirds of domestic economic activity, fell by a rate of 4.3%.
The nation's unemployment rate is now at 7.6%, the highest in more than 16 years.IFAonline
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