The Dow Jones industrial average finished down nearly 300 points. It swung in 100 point bursts throughout the day as investors reacted to sometimes conflicting headlines about the next steps in Greece's long-running debt crisis. Treasurys and other assets considered safe surged. The stocks of major banks, including Citigroup and JPMorgan Chase, were hit hard.
Intense selling roiled markets in Europe. Italy's main stock index dropped 6.8 percent. France's fell 5.4 percent and Germany's fell 5 percent.
The value of the dollar rose, and bond prices jumped so dramatically that analysts said they were stunned. Analysts said the bond action reflected fears that the turmoil in Greece would tear at the fabric of Europe's financial system and create a crisis that could engulf the entire European Union, which together forms the world's largest economy.
"This brings all of the concerns about Europe back to the front burner," said Scott Brown, chief economist at Raymond James. "If this ends up turning into a financial catastrophe in Europe, then no one will escape it."
The prime minister of Greece said unexpectedly Monday that he would put the European rescue plan to a popular vote, the first referendum to be held in Greece since 1974.
The plan requires banks that hold Greek national bonds to accept 50 percent losses to help keep the Greek economy afloat. It also beefs up a European bailout fund and requires banks to strengthen their financial cushions.
There were also late reports that Greek lawmakers dissented from the plan, raising the possibility that Greece's government would not last until a confidence vote on Friday.
International creditors have demanded that Greece enact painful tax increases and drastic cuts in public welfare programs, and Greeks have shown their hostility to those measures in violent protests and strikes.
The Dow fell 297.05 points, or 2.5 percent, to close at 11,657.96. It was the biggest drop since Sept. 22. The Dow has lost 573 points, or 4.7 percent, in the last two days.
The Samp&P 500 lost 35.02, or 2.8 percent, to 1,218.28. Some analysts took comfort that the Samp&P closed above 1,215. A drop below that level would erase nearly all of the market's gains in October. The Nasdaq composite dropped 77.45, or 2.9 percent, to 2,606.96.
Financial companies in the Samp&P 500 dropped 4.7 percent, the biggest loss among the 10 company groups that make up the index.
In the bond market, the yield on the 10-year Treasury note sank to 1.96 percent from 2.16 percent late Monday, a steep drop. The dollar rose to $1.36 for every euro.
The yield on the 30-year Treasury bond sank from 3.38 percent Friday to 2.96 percent Tuesday.