Stocks added to declines in the final minutes of trading to log a sharp loss Thursday after Germany rejected some of the EU summit draft measures and as ECB President Mario Draghi's comments dashed hopes that the central banks would raise its bond purchases of debt-ridden European nations.
The Dow Jones Industrial Average erased 198.67 points, or 1.63 percent, to close at 11,997.70, led by JPMorgan and BofA , snapping a three-day winning streak and ending below the psychologically-important 12,000 level.
The S&P 500 plunged 26.66 points, or 2.11 percent, to end at 1,234.35. The Nasdaq fell 52.83 points, or 1.99 percent, to finish at 2,596.38.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, closed above 30.
All 10 S&P sectors ended in negative territory, led by financials and materials.
According to the leaked EU summit draft, euro zone leaders were determined to move towards a "new fiscal compact" and strengthen bailout mechanisms, Reuters reported. However, Germany quickly rejected the draft measures, including giving the European Stability Mechanism (ESM) a banking license and issuing common euro zone debt, according to Reuters, citing a senior German official.
Investors have been heavily focused on the summit all week, which kicked off with a working dinner and is scheduled to continue through Friday. EU leaders will aim to agree on a plan to assuage the crisis.
“We may see a short-term rally on the bark, but I’m skeptical that the [EU summit resolution] will have a bite—there are so many divergent perspectives that it’s very unrealistic to get a complete package that satisfies all parties,” said Jay Wong, portfolio manager of the Payden Value Leaders Fund.