Stocks were on track to post their worst day so far in 2012 on Tuesday as recent government data rekindled concerns about global growth and as a deadline loomed for private holders of Greek debt to agree to hefty losses.

Volatility soared, with the CBOE Volatility Index or VIX <.VIX> at levels not seen since mid-February. The three major U.S. stock indexes were on track to post their largest declines in nearly three months.

Europe's downturn appeared ready to turn into a full-fledged recession due to a collapse in household spending, exports and manufacturing in the final months of 2011, the European Union said.

The concern in the market is the realization that China is affected by Europe as much as anyone else is, said Art Hogan, managing director of Lazard Capital Markets in New York.

Worries about a global slowdown become an issue when you lump on top of that a lackluster GDP report out of Brazil, Hogan said.

Brazil's gross domestic product expanded by a meager 2.7 percent in 2011, data showed Tuesday, adding to concerns after China cut its growth outlook earlier in the week.

The Dow Jones industrial average <.DJI> tumbled 168.96 points, or 1.30 percent, at 12,793.77. The Standard & Poor's 500 Index <.SPX> was down 19.73 points, or 1.45 percent, at 1,344.60. The Nasdaq Composite Index <.IXIC> slumped 42.53 points, or 1.44 percent, at 2,907.95.

Despite the decline, the S&P is still up 7 percent for the year and almost 20 percent including gains in the fourth quarter of 2011. Analysts have expected a pullback for weeks, citing an overstretched market.

A group representing bondholders warned a default could cause more than 1 trillion euros ($1.3 trillion) of damage to the region. Creditors have until Thursday night to accept a bond swap in which they would lose almost three-quarters of the value of their bonds.

If there is not enough participation in that part of the deal, what we have can fall apart, Hogan said.

As part of a reassessment of possible collateral damage if a Greece deal collapses, Hogan said U.S. traders sold stocks in large banks on concern about their exposure to Greece.

The S&P financial sector <.GSPF> dropped 2.2 percent and the KBW bank index <.BKX> fell 2.4 percent. Morgan Stanley fell nearly 5 percent to $17.38.

Greece has no plans to extend the deadline on its bond swap offer to private creditors, officials said, dismissing market rumors the date may be changed to increase participation in the offer.

Basic materials stocks were also hurt as commodity prices fell, pressured further by a stronger U.S. dollar.

Aluminum producer Alcoa Inc was off 3.3 pct to $9.54 and Freeport-McMoRan Copper & Gold Inc lost 3.3 percent to $38.98.

The CRB commodities index <.CRB> fell 1.2 percent, down for a third straight session.

(Reporting by Rodrigo Campos; editing by Jeffrey Benkoe)