Wall Street fell sharply on news the US Federal Reserve is reducing its monthly stimulus measures by another $US10 billion.

The market had broadly expected the reduction, even so, investors were worried about the effect that will have on already shaky emerging markets.

The Fed is sticking to its plan for a gradual withdrawal from stimulus measures under departing chairman Ben Bernanke.

However, it will still pump $US65 billion into the economy in the form of bond purchases each month.

The Fed says further signs of improvement in the US jobs market allowed for the slowdown in stimulus.

The central bank left unchanged its statement that it will probably hold its target interest rate near zero “well past the time” employment falls below 6.5 per cent.

The two-day meeting in Washington was the last for Ben Bernanke, who will be succeeded by current vice-chairman Janet Yellen on February 1.

By the close of trade, the Dow Jones Industrial Average lost 190 points, or 1.2 per cent, to 15,739.

The broader S&P 500 index shed 1 per cent, or 19 points, to 1,775.

The technology focused Nasdaq was down 1.1 per cent to 4,051.

Across the Atlantic, London’s market sank to a six-week low ahead of the further reduction in US monetary stimulus.

The FTSE 100 index shed 0.4 per cent, or 28 points, to 6,544.

Germany’s DAX slipped 0.8 per cent.

At 8:05am (AEDT) the Australian share market was set to track offshore losses, with the SPI futures contract pointing to a fall of 1.2 per cent at the start of trade.

The Australian dollar was lower against the greenback since yesterday, and worth 87.37 US cents, $NZ1.0647, 52.83 British pence and 63.97 euro cents.

On commodity markets, spot gold prices had edged higher to $US1,267.56 an ounce.

West Texas crude oil was worth just over $US97.30 a barrel.