Rising bond yields in Italy and a bank crisis in Spain dragged Wall Street lower on Wednesday, as Europe's financial woes continued to dictate the direction of U.S. stocks.
Angst over Europe's outlook drove investors from risky investments into safe-haven assets. U.S. Treasury benchmark yields fell to a 60-year low, prices for crude were down more than 3 percent and the euro fell below $1.24 to a 23-month low.
The Dow Jones industrial average closed the day down 161 points, having lost as much as 184 points earlier in the session.
The broader S&P 500 is down nearly 6 percent in May, headed for its worst monthly performance since September.
Yields rose sharply at an Italian sale of five- and 10-year debt, and investors worried about Spain's plans to raise new funds as that country's borrowing costs also rose. Adding to worries were Greece's upcoming election, which could determine if the country will stay in the euro zone or leave.
The CBOE volatility index, a gauge of market anxiety, jumped 10 percent.
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"You're seeing the deterioration in Spain gain magnitude and that is worrisome because it involves a larger bailout [than Greece's] and far more capital to alleviate banking problems," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
"Traders and long-term investors believe Europeans are working on solutions. But the ultimate question is will capital markets give them the time before a liquidity issue becomes a solvency issue."
Facebook’s share price sank to a new low, off 2.3 percent at $28.19.
U.S.-traded shares of Research In Motion tumbled after the BlackBerry maker warned it would likely report a quarterly operating loss. Analysts cut their price targets on RIM shares and said the odds of a turnaround at the company are fading fast.
Pep Boys Manny, Moe & Jack lost a fifth of its market value after private equity firm Gores Group walked away from a $791 million deal to buy the auto parts retailer.
U.S. economic data showed contracts to purchase previously owned U.S. homes unexpectedly fell in April to a four-month low, dealing a blow to optimism the housing sector may have hit a bottom.
Reuters contributed to this report.