US stock markets fell sharply on Thursday with the Dow recording its biggest ever intraday drop in point terms before recovering most of its losses.

Exchanges were investigating whether trading errors played a role. Programme trades may have exacerbated the fall, according to analysts.

At mid-afternoon, the S&P 500 was down about 4 per cent to 1,200, and then plunged to its intraday low of 8.6 per cent. Meanwhile, a 250-point fall on the Dow Jones Industrial Average became a loss of more than 1,000 points as buyers evaporated and programme trading delivered some bizarre price quotes, with some $20 stocks offered briefly for 1 cent.

Rich Adamonis, spokesman at NYSE Euronext, said: “There were a number of erroneous trades...Nasdaq is investigating.”

At the closing bell, the S&P 500 was down 3.2 per cent to 1,128.14, the Dow Jones Industrial Average lost 3.2 per cent to 10,520.32 and the Nasdaq Composite was 3.4 per cent lower at 2,319.64.

The Vix index, a measure of market volatility rocketed up 39.1 per cent to $34.65, its biggest one-day change since February 2007.

An unusual move in the Procter & Gamble share price, with the stock dropping to $39.37 from about $62 in a matter of minutes was being investigated by Nasdaq as trading error. The stock was down 2.3 per cent on the day.

Financials stocks were some of the day’s worst performers.