Fears that Greece could leave the euro zone, triggering an exodus by other weak sovereigns, spread through financial markets, sinking stocks and sending the euro to a 22-month low.
As the Dow saw a triple digit loss, buyers rushed into U.S. Treasurys, pushing yields close to historic lows.
The German 30-year bund yield fell below 2 percent for the first time, and strong demand for the safe haven bund resulted in a 2-year note auction yielding zero.
The euro cracked $1.26 to trade at its lowest level since July 2010.
Along with it, brent crude and West Texas Intermediate fell sharply through key technical areas.
Gold fell 2 percent, and silver was down more than 3 percent.
"Gold is getting crushed. Oil is getting crushed. It's like risk-off everywhere...This is really soured sentiment," said Marc Chandler, chief currency strategist at Brown Brothers Harriman. "There's talk the European finance ministers have told each other to prepare for Greece's exit."
"Many people believe if Greece leaves that will begin the downward spiral...then why not Spain? Portugal?," he said.
Comments from former Greek Prime Minister Lucas Papademos Tuesday helped kick off the selling as traders took a report quoting him just before the market close, to mean that Greece's exit from the euro was a strong possibility.
After Tuesday's market close, Papademos spoke with CNBC and said there are no preparations underway in Greece for possibly exiting the euro. He added that he is not aware of any specific preparations in European institutions or other European countries.
But news reports and market players speculated Greece would choose to exit when its citizens go to the polls June 17 to elect a new government.
Reuters quoted sources saying that euro zone countries will have to prepare contingency plans for the eventuality of Greece leaving the currency. But many investors believe those plans are already in place.
European leaders were gathering for a dinner in Brussels, and markets were also watching comments from Spain's finance minister. He said the government would cover needs of at least 9 billion euros in Bankia, the failing bank Spain is nationalizing.
“They may not have the large bullet people are talking about, but we are going to see if they discuss any measures to help growth or maintain that austerity pledge. Germany doesn’t want to be seen financing any budget deficits,” said Brian Kim, currency strategist at RBS.
There had been some expectations that the group could discuss a new euro bond, after French President Francois Hollande said he would raise the idea over the weekend. But even if discussed, it does not seem likely to gain much traction. A senior German official, quoted by the AP, said euro bonds are not the right path and can’t be part of a growth strategy.
Chandler said the French, Italian and Spanish bloc that favors joint bonds will not be able to force them on Germany.
"Germany has the treaty on its side. The current treaties bar joint bonds," he wrote in a morning note.
Chandler said there is room for compromise, such as allowing countries extra time to reach fiscal targets and creating project bonds for infrastructure and public projects. He also said the EMU could guarantee savings deposits, but that is not likely.
Investors are also watching the Treasury's auction of $32 billion in 5-year notes at 1 p.m. Earlier Wednesday, Germany auctioned $5.8 billion in 2-year notes with a zero percent coupon.
Oil markets were paying careful attention to the talks in Baghdad between Iran and six nations on Iran’s nuclear program. Diplomats from the six countries offered Iran new proposals but rejected Iran's request to ease sanctions.
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