A wave of selling swept across Wall Street and stock markets around the world Tuesday after Greece's prime minister said he would call a national vote on an unpopular European plan to rescue that nation's economy.
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.
If the European rescue falls through and Greece defaults on its debt, the ripple effect would be global. Europe could fall into recession, hurting a major market for American exports, and banks could severely restrict lending.
It was only last Thursday that European leaders announced a deal that they believed would be a turning point in the two-year debt crisis. Banks agreed to take bigger losses on Greek debt and to boost their levels of cash, while the European Union increased the size of its bailout fund. Global stock markets surged after the plan was unveiled. Now, those gains seem to be fleeting.
"The stock market is expressing disgust with Greek politics and a lack of confidence that Italy and Spain will generate the growth needed to pay down their debt," said Peter Boockvar, equity strategist at Miller Tabak & Co.
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 S&P 500 lost 35.02, or 2.8 percent, to 1,218.28. Some analysts took comfort that the S&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.
Pfizer Inc. was the only company in the Dow stock to rise. It gained 0.4 percent after its income and revenue beat Wall Street's estimates. General Motors Co. sank 9.8 percent after its October sales came in lower than Wall Street analysts were expecting.
Financial companies in the S&P 500 dropped 4.7 percent, the biggest loss among the 10 company groups that make up the index.
Bank of America Corp lost 6.3 percent. JP Morgan Chase & Co. dropped 5.9 percent, and Citigroup shed 7.7 percent.
Tuesday's sell-off came after an almost uninterrupted rally in October that was largely due to higher confidence in Europe's latest financial rescue plan for Greece and signs that the U.S. economy was not falling into another recession.
The S&P 500 rose from 1,099 on Oct. 3 to 1,285 Friday, or 17 percent. The last two days, it's given up one-third of that gain.
"The market is being held hostage by a random event that is overshadowing everything else," said John Canally, an economist at LPL Financial. Canally noted that the U.S. economy continues to expand. Retail sales came in better than expected in September and auto sales increased in October.
In the United States, the market sank Monday before the surprise Greek announcement. MF Global Holdings, a securities firm led by former New Jersey Gov. Jon Corzine, was driven into bankruptcy in part because of its holdings of European debt. The selling accelerated after the Greek announcement, and the U.S. market opened with a drop of almost 300 points.
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. Bond yields fall when their prices rise as investors buy assets that are considered to better hold their value during a slowing economy. 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.
"That's the biggest change that I've seen in my career," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "It's obscene."
The yields of Italian debt spiked to their highest level this year, another sign that investors are concerned that the debt crisis could spread to the larger economies of Europe. The yield on 1-year Italian government bonds soared 48 percent to 5.17 percent.
The yield on the 10-year German bund plunged to 1.78 percent, a 23.5 percent fall from the day before. The German economy is seen as the strongest in Europe and the most likely to repay its debt.