U.S. stocks fell on Tuesday as downgrades of Greek and Portuguese debt reignited fears of defaults in the euro zone, while a grilling for Goldman Sachs on Capitol Hill raised the specter of tough financial reform.

Financial stocks remained in focus as Goldman Sachs Group Inc executives sought to fend off accusations they helped inflate the housing bubble and made billions off the collapse as they testified before a Senate subcommittee.

The cost of insuring Greek and Portuguese debt against default rose to record highs after rating agency Standard and Poor's cut Greece's rating to junk status and downgraded Portugal by two notches.

The fear that there may be financial reform that might be a little overburdening on the market, that's hurting the financial stocks and spilling over into the market in general, said Jim Maguire Jr., an NYSE floor trader at E.H. Smith Jacobs.

Goldman's stock rose 1.3 percent to $153.94, but the S&P financial index <.GSPF> slid 2.4 percent. Although Goldman's stock bucked the market's sharp downtrend on Tuesday, it's still down 16 percent from its recent closing high on April 15, which was the night before the U.S. Securities and Exchange Commission filed civil fraud charges against the company.

Maguire added that the downgrades for Greece and Portugal were a reminder of the risks that the euro-zone debt problems pose to investors.

The downgrades are a reflection of what's been there all along, he said. The market can ignore realities that are out there for a longer period of time than people would expect.

The Dow Jones industrial average <.DJI> lost 144.57 points, or 1.29 percent, to 11,060.46. The Standard & Poor's 500 Index <.SPX> fell 20.29 points, or 1.67 percent, to 1,191.76. The Nasdaq Composite Index <.IXIC> fell 40.51 points, or 1.61 percent, to 2,482.44.

The stock sell-off was broad and on relatively high volume, with economically sensitive sectors such as materials, energy, financials and consumer discretionary falling around 2 percent. Chevron Corp was among the biggest drags on the Dow Industrials, falling 2.4 percent to $80.63.

The S&P 500 broke through a technical resistance level and chartists now look at 1,180 as a near-term support. Mid-term support is seen at around 1,150, the peak the benchmark hit in January.

Major U.S. stock indexes were on track for their worst losses since Feb 4, when the S&P 500 fell more than 3 percent and the Dow briefly fell below 10,000, also on concerns about the fiscal stability of Portugal, Spain and Greece.

U.S.-traded shares of the National Bank of Greece sank almost 16 percent to $2.60, a session low, their lowest since March 2009.

The euro fell more than 2 percent against the yen and was trading near its 12-month low against the U.S. dollar.

Reflecting Wall Street fears over the sovereign debt problems, the CBOE Volatility Index <.VIX> surged nearly 20 percent to its highest since February.

3M Co was among just two Dow components in the positive zone, up 1.2 percent at $88.49 after posting better-than-expected quarterly profits and raised its full-year outlook.

More than four stocks fell for each one that rose on the New York Stock Exchange, while on the Nasdaq, decliners outnumbered advancers by a ratio about 10 to 7.

(Reporting by Edward Krudy; Editing by Jan Paschal)