The Dow Jones Industrial Average tumbled 156.06 points, or 1.24 percent, to close at 12,442.49, led by JPMorgan and Caterpillar , logging its 11th down day in the last 12 sessions.
Wal-Mart was the biggest gainer on the index.
The S&P 500 slumped 19.94 points, or 1.51 percent, to end at 1,304.86. Nasdaq plunged 60.35 points, or 2.10 percent, to finish at 2,813.69.
Most key S&P sectors ended in negative territory, led by consumerdiscretionary, while telecoms edged higher.
Fitch downgraded Greece by one notch to CCC from B- amid "heightened risk" that the debt-ridden nation may be forced to exit the euro zone. This comes after ECB said it had ceased providing liquidity to some Greek banks due to their failure to recapitalize.
Investors had been on edge over the euro zone after a report that Moody's told a number of Spanish banks that it will lower their ratings, according to a Spanish newspaper, citing sources. This comes after the agency cut the ratings of 26 Italian lenders earlier this week. Spain's 10-year yields spiked back above 6 percent.
“This dollar strength has not been good for the markets overall,” noted Bob Iaccino, founder of TraderOutlook.com. “As a trader, I’m looking at about 1,285 [on the S&P 500] as a safe place to buy. I know it’s a lot lower [than current levels], but it doesn’t mean I’m shorting—just means I’m not comfortable buying for a longer-term position.”
Meanwhile, gold prices surged more than 2 percent to trade above $1,570 an ounce, bouncing off a 4-1/2 month low and seeing their best intraday session in 2012.
On the economic front, leading indicators fell for the first time in seven months, according to the Conference Board. Economists And the pace of factory activity in the mid-Atlantic region unexpectedly contractedin May, according to the Philadelphia Federal Reserve Bank.
Claims for unemployment benefits were unchanged last week, holding steady at a seasonally adjusted 370,000 rate, according to the Labor Department.