U.S. stocks ended sharply lower on Tuesday, with each of the three major indexes losing over 2 percent amid news that Greece is to hold a referendum on the bailout deal.
European Union leaders agreed last week on a rescue package for Greece after difficult negotiations, but Greek Prime Minister George Papandreou has announced that he will leave the fate of the bailout to voters in his country.
Investors fretted that the measure will put Greece's EU membership at risk and worsen the current eurozone crisis.
Meanwhile, Japanese monetary authorities announced on Monday a massive currency intervention to safeguard the country's exporters. The greenback surged significantly after the intervention, arousing concerns among investors that the U.S. economy, especially its export sector, would be hurt by a strong dollar.
Adding to pressure, bank shares fell hard as investors were worried about the exposure of U.S. banks to European debt amid the abrupt bankruptcy of securities firm MF Global. Citigroup plummeted 7.88 percent while Morgan Stanley dropped 7.82 percent. Both Bank of America and JPMorgan Chase dived nearly 6 percent, the worst hit among the 30 stocks in the Dow.
On the economic front, data showed that U.S. manufacturing activities slowed in October. The Institute for Supply Management said its manufacturing index dropped to 50.8 percent last month from 51.6 percent in September.
Moreover, investors' attention were drawn to a meeting of the Federal Reserve on any signals that might affect the economic outlook.
As of Tuesday's close, the Dow Jones industrial average tumbled 297.05 points, or 2.48 percent, to 11,657.96. The Standard & Poor' s 500 plunged 35.02 points, or 2.79 percent, to 1,218.28. The Nasdaq Composite Index declined 77.45 points, or 2.89 percent, to 2,606.96.
As for oil, U.S. crude oil price fell on Tuesday as Greece's unexpected decision to call a referendum over its debt bailout caused renewed concerns about the euro zone.
Light, sweet crude for December delivery dropped 1 dollar, or 1. 07 percent to settle at 92.19 dollars a barrel on the New York Mercantile Exchange. In London, Brent crude for December delivery settled flat at 109.54 dollars a barrel, down 2 cents.
The U.S. dollar rose against major currencies in late New York trading on Tuesday with the dollar index surging 1.48 percent to 77.29.