Wall Street's main indexes have lost more than one per cent, with Nasdaq leading the declines, as evidence of a tight labour market eroded hopes the Federal Reserve could pause its rating hiking cycle anytime soon as it remains focused on inflation.
Thursday's ADP National Employment report showed a higher-than-expected rise in private employment in December.
Another report showed weekly jobless claims fell last week.
On Wednesday, another data set showed a moderate fall in US job openings.
While a strong labour market would usually be welcomed as a sign of economic strength, investors currently see it as a reason for the Fed to keep interest rates high.
"It's very clear that good news on the labour market means bad news for the stock market. Data is showing that the labour market is very resilient," said Anthony Saglimbene, chief market strategist at Ameriprise in Troy Michigan.
"As long as the labour market is resilient, the Federal Reserve has to continue to tighten financial conditions to bring inflation down," said Saglimbene, who expects investors to be keenly focused on wage inflation in Friday's jobs report.
The Dow Jones Industrial Average fell 339.69 points, or 1.02 per cent, to 32,930.08, the S&P 500 lost 44.87 points, or 1.16 per cent, to 3808.1 and the Nasdaq Composite dropped 153.52 points, or 1.47 per cent, to 10,305.24.
The indexes lost steam late in the day, ending close to their session lows.
They had pared losses in the early afternoon when St Louis Federal Reserve leader James Bullard said 2023 could finally bring some welcome relief on the inflation front.
While Saglimbene noted that Bullard's comments were not surprising, his suggestion that rate hikes were starting to show some signs of dampening inflation provided some reassurance.
Among the S&P's 11 major sectors, real estate - which was the biggest percentage gainer on Wednesday - lead Thursday's sector losses with a 2.9 per cent drop.
Utilities came next, falling 2.2 per cent.
The sole gainer was energy, which closed up 1.99 per cent after crude oil futures settled higher.
On Wednesday, Wall Street's main indexes had erased some of their gains after minutes from the Fed's December meeting showed officials were laser-focused on fighting inflation even as they agreed to slow the hiking pace to limit economic risks.
Earlier Thursday both Kansas City Fed leader Esther George and Atlanta President Raphael Bostic stressed that the central bank's priority was to curb inflation through policy tightening.
Traders see rates peaking at slightly above 5.0 per cent in June.
The more comprehensive non-farm payrolls report due on Friday will be looked to for further clues on labour demand and the rate hike trajectory.
Among individual stocks, Tesla Inc ended down 2.9 per cent after December sales of its China-made electric vehicles fell to a five-month low, while Amazon.com Inc finished down 2.4 per cent after it announced increased lay-off plans.
Walgreens Boots Alliance Inc finished down 6.0 per cent at $US35.19 ($A52.14) after the drugstore chain posted a quarterly loss on an opioid litigation charge.
Shares in Bed Bath & Beyond Inc plunged 29.9 per cent to $US1.69 ($A2.50) after the home goods retailer said it was exploring options, including bankruptcy.
Declining issues outnumbered advancing ones on the NYSE by a 1.58-to-1 ratio; on Nasdaq, a 1.44-to-1 ratio favoured decliners.
The S&P 500 posted eight new 52-week highs and seven new lows; the Nasdaq Composite recorded 68 new highs and 66 new lows.
On US exchanges, 10.21 billion shares changed hands compared with the 10.79 billion moving average for the past 20 trading days.