US stocks were down more than three percent in afternoon trade Wednesday as rumors swirled about eurozone stability and possible rescue actions for embattled Italy.
As the yield on Italian 10 year bonds hit their highest in the eurozone area, above 7.2 percent, US investors poured in the sell orders, with markets falling more than their European counterparts.
At about 2000 GMT the Dow Jones Industrial Average was down 384.58 (3.16 percent) to 11,785.60.
The tech-heavy Nasdaq Composite fell 100.05 (3.67 percent) at 2,627.44, while the broader S&P 500 sank 44.21 (3.46 percent) to 1,231.71.
The market selloff came after Italy's sovereign debt yields soared above 7.0 percent, an unsustainable level at which other eurozone members like Portugal and Ireland were forced to seek bailouts from the European Union and International Monetary Fund.
"The major averages remain under pressure as soaring yields of Italian debt sparked concerns Europe's debt crisis is getting worse," said Scott Marcouiller of Wells Fargo Advisors.
"A solution to resolve Greece’s problems remained a mystery as Prime Minister Papandreou officially resigned without naming a successor," he added.
Banks and financials were down 4.5 percent, leading losses that stretched across all market sectors.
Earlier London's FTSE 100 index closed down 1.92 percent at 5,460.38 points. In Paris, the CAC-40 lost 2.17 percent to 3,075.16 points and in Frankfurt the DAX 30 dropped 2.21 percent to 5,829.54 points.
"Sentiment has taken a decidedly negative turn as market participants assess conditions in Europe," said analysts at Briefing.com.
"As if Greece's woes weren't enough to stir specters of contagion, many have become alarmed by the difficulty Italy faces in shoring up its fiscal and financial conditions."