Stocks suffered their worst loss in two weeks on Monday after comments from Germany's finance minister caused investors to fear Europe's solution to its debt crisis may not come fast enough.
The S&P index had risen for two straight weeks for the first time since July, riding a wave of euphoria built on optimism that European leaders had a newfound commitment to tackle a crisis that threatened financial stability and global growth.
The rapid rally left the market susceptible to swift declines. German Finance Minister Wolfgang Schaeuble, speaking of an October 23 European Union summit on the debt crisis, tempered enthusiasm, saying, we won't have a definitive solution this weekend.
U.S. bank earnings also contributed to the selling pressure. Wells Fargo & Co shares fell 8.4 percent to $24.42 after the U.S. lender financial results fell short of expectations.
The KBW Bank index lost 3.9 percent.
The German Finance Minister basically came out and sort of ruined the expectation that a grand plan was coming along, that some sizable fund was being put together to recapitalize European banks, said Stephen Massocca, fund manager with Wedbush Morgan in San Francisco.
Depending on the development there, we could technically get back down to the low end of the trading range, which is about 1,100 on the S&P.
With that in mind, investors rushed to seek protection in the options market against losses. The CBOE Volatility index VIX, Wall Street's so-called fear gauge, rose 18.2 percent to 33.39, its highest one-day jump since August.
The VIX is a 30-day risk forecast of stock market volatility conveyed by S&P 500 index options; it generally moves inversely to the S&P benchmark.
The Dow Jones industrial average was down 246.58 points, or 2.12 percent, at 11,397.91. The Standard & Poor's 500 Index was down 23.72 points, or 1.94 percent, at 1,200.86. The Nasdaq Composite Index was down 52.93 points, or 1.98 percent, at 2,614.92.
Trading volume was light, with just 6.87 billion shares exchanging hands on the New York Stock Exchange, NYSE Amex and Nasdaq for the day, well below the year's daily average so far of about 8 billion.
Events in Europe overshadowed a $21 billion deal by Kinder Morgan Inc to buy rival El Paso Corp, combining the two largest natural gas pipeline operators in North America in a huge bet on the fast-growing market for that fuel.
El Paso's shares surged 24.8 percent to $24.45 and Kinder Morgan shares jumped 4.8 percent to $28.19.
Shares of Citigroup Inc fell 1.7 percent to $27.93. The bank reported higher third-quarter earnings as it set aside less money to cover bad loans and recorded an accounting gain available to banks in turbulent markets.
After the closing bell, IBM reported third-quarter revenue that met expectations. The tech company ended 2 percent lower at $186.59 during regular trading, but in after-hours action IBM shares fell 3.6 percent more to $179.81 after reporting results.
Of the 45 companies in the S&P 500 that have reported earnings, 62 percent have beaten analyst expectations, according to Thomson Reuters data.
Declining stocks outnumbered advancing ones on the NYSE and the Nasdaq by a ratio of about 5 to 1.
(Reporting by Angela Moon; Editing by Kenneth Barry)