Dow ends down nearly 300 as Greek plan shocks stocks

A wave of selling swept Wall Street and stock markets around the world Tuesday after the prime minister of Greece said he would let its people vote on an unpopular European plan to rescue the Greek economy.

Stocks pared some of their losses after Greek lawmakers dissented from the plan, raising the possibility that Greece's government might not last until a confidence vote on Friday.

The Dow Jones industrial average closed down 295.8 points, or 2.5 percent, at 11,659.2. It had been down as many as 320 points at midday. The stocks of major banks, including Citigroup and JPMorgan Chase, were hit hard.

The Standard & Poor's 500 ended down 35, or 2.8 percent, to 1,218.3. The Nasdaq composite dropped 77.5, or 2.9 percent, to close at 2,606.

Intense selling roiled markets in Europe. Italy's main stock index dropped 6.8 percent. France's fell 5.4 percent and Germany's fell 5 percent.

Pfizer Inc. was the only company in the Dow stock to rise. It gained 1.4 percent after its income and revenue beat Wall Street's estimates. General Motors Co. sank 8.9 percent after its October sales came in lower than Wall Street analysts were expecting.

The value of the dollar rose, and bond prices jumped so dramatically that analysts said they were stunned. Analysts said the bond action reflected fears that the turmoil in Greece would tear at the fabric of Europe's financial system and create a crisis that could engulf the entire European Union, which together forms the world's largest economy.

"This brings all of the concerns about Europe back to the front burner," said Raymond James chief economist Scott Brown. "If this ends up turning into a financial catastrophe in Europe, then no one will escape it."

The prime minister of Greece said unexpectedly Monday that he would put the European rescue plan to a binding vote, the first referendum to be held in Greece since 1974.

The plan requires banks that hold Greek national bonds to accept 50 percent losses to help keep the Greek economy afloat. It also beefs up a European bailout fund and requires banks to strengthen their financial cushions.

International creditors have demanded that Greece enact painful tax increases and drastic cuts in public welfare programs, and Greeks have shown their hostility to those measures in violent protests and strikes.

If the European rescue falls through and Greece defaults on its debt, the ripple effect would be global. Europe could fall into recession, hurting a major market for American exports, and banks could severely restrict lending.

It was only last Thursday that European leaders announced a deal that they believed would be a turning point in the two-year debt crisis. Banks agreed to take bigger losses on Greek debt and to boost their levels of cash, while the European Union increased the size of its bailout fund. Global stock markets surged after the plan was unveiled. Now, those gains seem to be fleeting.

"The stock market is expressing disgust with Greek politics and a lack of confidence that Italy and Spain will generate the growth needed to pay down their debt," said Peter Boockvar, equity strategist at Miller Tabak & Co.