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Stocks End Sharply Lower on EU Worries

Stocks plunged sharply Tuesday to close at session lows amid jitters over the euro zone's ability to find a solution to the ongoing debt crisis.

“I’m shocked stocks aren’t actually lower today,” said Brian Battle, vice president of trading at Performance Trust Capital Partners, citing the final hour's sell off to traders' reluctance to hold positions overnight ahead of the summit.

The Dow Jones Industrial Average dropped 207 points, or 1.74 percent, to close at 11,706.62. 3M and Alcoa led were the biggest laggards on the blue-chip index.

The S&P 500 slumped 25.14 points, or 2 percent, to end at 1,229.05. The Nasdaq fell 61.02 points, or 2.26 percent, to finish at 2,638.42.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, soared more than 10 percent to close above 32.

All 10 S&P sectors finished firmly in the red, led by financials and materials.

“The market was a little overheated and anticipating a lot of optimistic news out of Europe that probably isn’t that likely in the near future,” Adam Parker, managing director and U.S. equity strategist at Morgan Stanley told CNBC.

Stocks extended their losses after news that EU finance ministers will not meet before Wednesday's summit, although the summit itself is still set to take place. Reuters reported that the finance ministers meeting was canceled because the details of the issues to be discussed had not been finalized, quoting EU sources.

  • EU Summit Unlikely to Reach Broad Deal: Official

“I fear that [the euro zone] will ask the U.S. for help when they come to a dead end and the greater fear is that we will say yes!” said Battle.

Investors were also nervous after Germany's Chancellor Angela Merkel said she is opposed to a phrase in a draft conclusion for Wednesday's EU summit that calls for the ECB to continue buying bondsin the secondary market. European shares declined following the news.

Among earnings, DuPont posted a better-than-expected quarterly profit and boosted its 2011 earnings forecast. However, the chemical maker turned lower in the final hour of trading, along with the broader market.

Meanwhile, fellow Dow component 3M tumbled after the conglomerate missed earnings expectations and lowered its outlookamid a lackluster electronics market and weak demand.

Netflix tanked more than 30 percent to trade near 18-month lows after the movie-streaming firm announced it lost more customers than expected. In addition, at least seven brokerages slashed their price targets and ratings on the firm.

Deutsche Bank topped earnings estimates, as stronger consumer banking helped offset falling profits from trading securities. And UBS posted a smaller-than-expected earnings decline as its central wealth management unit performed well. Both stocks finished slightly lower.

MF Global plunged more than 40 percent after the brokerage posted an unexpected loss, due to the recent volatility and higher costs.

United Parcel Services slipped even after the global shipping company posted higher-than-expected earnings and affirmed its outlook for record results in 2011.

Xerox eked out a gain after the digital imaging firm topped profit and revenue expectations as it signed more long-term deals to provide business services to companies.

BPreported lower underlying profit for the quarter despite higher oil prices, but the oil giant's shares rose as the profit was ahead of forecasts. The firm has reached an "operational turning point" after the Gulf of Mexico disaster last year, chief executive Bob Dudley told CNBC Tuesday.

Texas Instruments posted higher-than expected profit and revenue, but shares slipped after the chipmaker said economic uncertainty would continue to hurt its current quarter. Still, at least three brokerages raised their price targets on the firm.

Tech firms Amazon.com and Broadcom are among companies scheduled to post earnings after-the-bell tonight.

First Solar dropped more than 20 percent after the solar energy firm said its CEO Rob Gillette has departed.

Meanwhile, Quest Diagnostics soared to lead the S&P 500 gainers after the lab-testing company said CEO Surya Mohapatra would step down, prompting speculation the firm could be a takeover target.

Treasury prices held their gainsafter the government auctioned $35 billion in 2-year notes at a high yield of 0.281 percent and bid-to-cover at 3.64.

On the economic front, consumer confidence plunged to its lowest level since March 2009, according to the Conference Board's Consumer Confidence Index.

And home prices were largely unchanged in August, pointing to a real estate market that has yet to gain momentum, according to the S&P/Case-Shiller home price index.

—Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC

On Tap This Week:

WEDNESDAY: Weekly mortgage applications, durable goods orders, new home sales, oil inventories, 5-yr note auction; Earnings from Boeing, Ford, ConocoPhillips, GlaxoSmithKline, Sprint and Visa
THURSDAY: GDP, jobless claims, pending home sales index, 7-yr note auction, Motorola begins pre-orders for Droid Razr on Verizon; Earnings from AstraZeneca, Bristol-Myers, ExxonMobil, P&G, Royal Dutch Shell, Aetna, Motorola Solutions, Time Warner Cable, AMD, Motorola Mobility, Gilead Sciences, Baidu and Electronic Arts
FRIDAY: Personal income & outlays, employment cost index, consumer sentiment; Earnings from Chevron and Merck

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