Stocks dropped heavily in the final hour of trading to finish sharply lower in thin trading Thursday following a report from Fitch on U.S. bank exposure to Europe.
The Dow Jones Industrial Average fell 190.57 points, or 1.58 percent, to finish at 11,905.59, after hovering around the psychologically-important 12,000 level for most of the session.
Alcoa and JPMorgan led the blue-chip laggards.
The S&P 500 lost 20.89 points, or 1.66 percent, to end at 1,236.92. The Nasdaq tumbled 46.59 points, or 1.73 percent, to close at 2,639.61.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, finished above 33.
All 10 S&P sectors finished sharply in negative territory, led by banks.
Bank stocks led the decline after Fitch came out with a report on U.S. bank exposure to Europe. While it describes current exposure as "manageable," they also noted that "unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen."
Shares of major banks such as Morgan Stanley and Goldman Sachs tumbled sharply following the report.
“Our markets and economy here are much stronger than what the level of S&P 500 indicates, but it’s being held down by issues in Europe,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. “If we can get some certainty out of Europe…we can see a fourth quarter rally.”
In Italy, Prime Minister designate Mario Monti announced he has formed a new government, completing the process in less than three days, and said he would also act as the country's finance minister. Monti added he would lay out a program for economic reform on Thursday.
Italian banks have ramped up their reliance on the ECB for cheaper funding since the summer as the euro zone's third biggest economy was sucked ever deeper into the region's debt crisis and its lenders faced sharply higher refinancing costs.