Stocks dropped more than 1 percent on Tuesday as German growth data and a meeting of French and German leaders failed to ease worries about the euro zone debt crisis.
After a meeting with German Chancellor Angela Merkel, French President Nicolas Sarkozy said the leaders planned a tax on financial transactions and closer joint governance of economic policy to stop the debt crisis. But they did not propose increasing the euro-zone bailout fund or selling euro-zone bonds.
Analysts said investors saw little in the comments that would mean a resolution to the trouble, which has plagued the region for more than a year.
The market was holding out hope that we would be closer to a euro bond, but it sounds like they're trying to do everything but, as it won't be politically acceptable to Germany, said
Phil Flynn, senior market analyst with PFG Best in Chicago.
What we're moving toward is more uncertainty.
All three indexes initially pared losses on the comments but quickly reversed course to trade sharply lower. Shares of financials, seen as vulnerable to a European fiscal crisis, added to their decline and were the worst-performing sector in the S&P 500. The S&P financial index was down 2.1 percent.
Worries about the euro-zone troubles and a weakening U.S. economy have pushed U.S. stocks into correction territory after the S&P 500's closing high on April 29.
The Dow Jones industrial average was down 176.26 points, or 1.53 percent, at 11,306.64. The Standard & Poor's 500 Index was down 22.03 points, or 1.83 percent, at 1,182.46. The Nasdaq Composite Index was down 56.46 points, or 2.21 percent, at 2,498.74.
In another blow to the outlook for the region, data showed Germany's gross domestic product expanded just 0.1 percent from April to June versus the previous quarter, missing forecasts and knocking regional growth figures below expectations.
(Reporting by Caroline Valetkevitch, additional reporting by Ryan Vlastelica; Editing by Kenneth Barry)