The Dow Jones Industrial Average tumbled 160.83 points, or 1.28 percent, to close at 12,419.86, led by Alcoa and BofA . The blue-chip index is less than 2 percent from erasing all of this year's gains.
The S&P 500 fell 19.10 points, or 1.43 percent, to end at 1,313.32. The Nasdaq dropped 33.63 points, or 1.17 percent, to finish at 2,837.36.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged nearly 15 percent to finish above 24.
All 10 S&P sectors closed lower, led by energy and financials.
“There’s certainly no panic—the S&P bounced at 1,311, which is right where we’re supposed to bounce,” said Stephen Gilfoyle, trader at Meridan Equity Partners. “We’re going into two very heavy macro days in the U.S. where the focus could shift to domestic [reports]—the GDP and non-farm payrolls.”
Non-farm payrolls are expected to show a gain of 150,000 in May, according to a Reuters poll, after a small gain of 115,000 new jobs in April, the fewest in six months.
On the economic front, pending home sales dropped 5.5. percent in April to a four-month low, according to the National Association of Realtors. Economists polled by Reuters had expected a gain of 0.1 percent, after a previously reported 4.1 percent gain.
Meanwhile, the European Commission said the euro zone must move towards a banking union, issue eurobonds and boost growth while cutting debt. (Read More: 'Spexit' Will Come Before a 'Grexit': Analyst)
European shares finished sharply lowerand the euro touched a 23-month lowagainst the U.S. greenbackas investors worried that Spain's banking problems would push its borrowing costs near highs not seen since last November. And worries over Italy's borrowing costs also raised alarm, pushing the Italian 10-year bond above 6 percent.
