Stocks closed firmly in the red Friday amid fears that Greece may default on its debt and following news that ECB's Juergen Stark will resign.
For the week, the Dow and S&P 500 plunged more than 5 percent each, while the Nasdaq slumped over 4 percent.
The Dow Jones Industrial Average plunged sharply to close around the psychologically-important 11,000 level, led by AmEx and Hewlett-Packard after logging a triple-digit declinein the previous session.
The Dow has posted three-digit moves in 19 of the past 24 trading sessions.
The S&P 500 and the Nasdaq also tumbled.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged almost 15 percent to end near 40.
All 10 S&P sectors ended lower, led by energy and materials.
Greece's finance ministry issued at statement dismissing rumorsthat the debt-ridden nation is planning on defaulting over the weekend.
"Greece's fundamental choice and priority is it fully and entirely implement the Jul. 21 decision, and wholly fulfill its obligations from the agreement between Greece and its partners," according to the statement from Greece's finance minister.
The news came after Germany said it is preparing plans to shield banks should Greece end up defaulting on its debt, according to a Bloomberg report.
“The fear feeds on itself,” Peter Boockvar of Miller Tabak told CNBC. “The end point will come next week or the week after the at the latest where Greece is hoping that they get the next tranche [of aid] because if they don’t, they realize they’ll run out of money.”
Boockvar also noted that while Germany is preparing to shield their banks in the event of a Greek default, “every other European country is going to be doing the same thing.”
“All the money they’re allocating to the EFSF (European Financial Stability Facility) and these bailouts can be better spent by recapitalizing these banks and finally letting Greece go,” said Boockvar. “The only way to cut debt is to cut debt, not pile on more debt.”
Earlier, markets were rattled following news that ECB Executive Board Member Juergen Stark will step down from his post due to conflict over the central bank's controversial bond-buying program, hinting at a deep divide among ECB members on how to solve the region's fiscal problems.
European shares closed firmly in the red, while the euro fell to six-month lows versus the dollar and the yen.
Banks in Europe were trading lower across the board after Goldman Sachs cut the price targets for major European financial institutions, saying they may need to raise capital if governments impose haircuts on their sovereign debt holdings.
European banks trading in the U.S. slumped, including Barclays and Deutsche Bank . CreditSuisse touched a two-year low.
Meanwhile, investors also remained skeptical over whether President Obama's $447 billion plan to boost jobs would be approved by Congress.
Obama said his $447 billion jobs plan"will provide a jolt to an economy that has stalled and give companies confidence that if they invest and hire, there will be customers for their products and services," in an address to Congress Thursday evening.
McDonald's tumbled after the fast-food giant's August sales missed expectations.
Fellow Dow component Bank of America fell amid discussions to cut 40,000 jobs in the first wave of a restructuring program, according to the Wall Street Journal. Meanwhile, Baird cut its price target on the bank to $11 from $12.
Yahoo slipped after the Internet company hired UBS and Allen & Co. to help it navigate a period in which it is dealing with an activist shareholder and trying to determine ways it can enhance value, according to people close to the company.
Texas Instruments gained even after the chipmaker slashed its sales and profit outlook, citing "broadly lower demand across a wide range of products, markets and customers." In addition, at least two brokerages cut their price targets on the firm.
Other chip stocks were also bucking the trend including Novellus , Micron and Marvell .
Apple fell, even after a German court upheld a ban preventing rival Samsung from selling its Galaxy 10.1 tablets in Europe's biggest economy.
VeriSign slumped to lead the S&P 500 laggards after the Internet domain name provider said its CFO Brian Robins has resigned.
Meanwhile, the European Commission will not impose serious anti-trust restrictions on the $9 billion merger between Deutsche Boerse and NYSE Euronext , and will instead use new regulations to force the exchanges to open up, according to sources.
On the economic front, wholesale inventories gained 0.8 percent in July to a seasonally adjusted $462.41 billion, after rising 0.6 percent in June, according to the Commerce Department.
Meanwhile, NYC officials said they would immediately increase security measures after U.S. officials learned of a possible terror threat associated with car and truck bombs on the 10th anniversary of the Sept. 11 attacks this weekend.
Also in Europe, G7 officials will meet in France later Friday, under pressure to find a solution to the long-drawn debt crisis in the euro zone.
In China, inflation pulled back in August from a three-year high, while economic activity slowed, underlining expectations the central bank can hold off on further monetary policy tightening in the face of a global economic slowdown.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
On Tap Next Week:
MONDAY: 3-Yr note auction, Fed's Fisher speaks
TUESDAY: NFIB small biz optimism index, import & export prices, 10-yr note auction, Samsung/MSFT tablet unveiled; Earnings from Best Buy
WEDNESDAY: Weekly mortgage apps, PPI, retail sales, business inventories, oil inventories, 30-yr bond auction, Microsoft analyst meeting
THURSDAY: CPI, Empire state mfg survey, jobless claims, current account, industrial production, Philadelphia Fed survey, credit card default rates reported; Earnings from Pier 1, Research In Motion
FRIDAY: Treasury international capital, consumer sentiment, quadruple witching
More From CNBC.com: