A wave of selling swept U.S. stocks and stock markets around the world Tuesday after Greece said it would let its people vote on an unpopular European plan to rescue the Greek economy.
The Dow Jones industrial average plunged nearly 235 points, or 2.6 percent, by the early afternoon. It sank 276 points the day before. The stocks of major banks, including Citigroup and JPMorgan Chase, were hit hard.
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.
"The Greek referendum puts the connections between European countries at risk, from free-trade agreements to the common currency," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.
The prime minister of Greece said unexpectedly Monday that he would put the European rescue plan to a binding 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.
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.
"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 U.S. manufacturing continued to expand in October and that builders spent more on projects for the second straight month.
The Dow was down 232 points, or 1.9 percent, to 11,724 at 1:30 p.m. Eastern. It had been down as many as 320 points at midday.
The S&P 500 was down 28, or 2.3 percent, to 1,225. The Nasdaq composite fell 68, or 2.5 percent, to 2,616.
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 it held European debt.
The selling accelerated after the Greek announcement, and the U.S. market opened Tuesday with a drop of almost 300 points.
Some of the selling in stocks came because investors were eager to lock in profits after an almost uninterrupted rally in October. The Dow had its best month in nine years, and the Standard & Poor's 500 index its best in 20 years.
In the bond market, the yield on the 10-year Treasury note sank to 2.02 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 3 percent Tuesday.
"That's the biggest change that I've seen in my career," LeBas said. "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.