The S&P and Nasdaq dropped into negative territory for the year on Wednesday in a crush of trading on the perception Japan's nuclear crisis would continue to be a headwind for equities.
The Dow also neared its 2010 closing level in the year's most heavily traded session while the CBOE market volatility index <.VIX> surged, a sign the market would continue to gyrate and faced possible further losses in the near term.
The VIX jumped 21 percent, the biggest percentage gain since February 22. At 29.31, Wall Street's so-called fear index is up more than 46 percent this week. During Wednesday's session it briefly breached the psychologically important 30 level.
Phil Flynn, senior market analyst with PFG Best in Chicago, said markets were trading "headline to headline, so I'm telling people not to overcommit to markets at this time."
Stocks plummeted after the European Union's energy commissioner said, "In the coming hours, there could be further catastrophic events, which could pose a threat to the lives of people on the island."
Uncertainty about Japan drove investors to seek safer assets like bonds. More than three stocks fell for every one that rose on the New York Stock Exchange while more than two-thirds of Nasdaq companies fell.
Trading volume on the New York Stock Exchange, the American Stock Exchange and Nasdaq was 11.1 billion shares, sharply above last year's daily average of 8.47 billion.
"The trading volume suggests a lot of the trade is due to panic, and soon buyers will realize there wasn't much basis for the move," said Komal Sri-Kumar, who helps manage $116 billion as chief global strategist at TCW Group Inc in Los Angeles.
The Dow Jones industrial average <.DJI> was down 242.12 points, or 2.04 percent, at 11,613.30. The Standard & Poor's 500 Index <.SPX> was down 24.99 points, or 1.95 percent, at 1,256.88. The Nasdaq Composite Index <.IXIC> was down 50.51 points, or 1.89 percent, at 2,616.82.
The S&P has fallen 3.6 percent for the week so far.
The iShares MSCI Japan Index Fund slid 3.8 percent to $9.65 and is down 11 percent this week in the aftermath of the earthquake and tsunami, which struck Japan on Friday.
Rising radiation levels caused workers to withdraw briefly from a quake-damaged nuclear power plant. Nikkei dollar-denominated futures were down 5.1 percent.
Nuclear-related stocks slid on bets the crisis would cripple the industry's growth worldwide. Cameco Corp shed 9 percent to $29.64 and Shaw Group dropped 3.8 percent to $32.83 on volumes many times their 10-day averages. The Global X Uranium ETF lost 6.6 percent.
"We're not recommending any new purchases of uranium stocks," said Joshua Brown, vice president of investments at Fusion Analytics in New York. "The growth picture there is night and day compared with last week."
U.S.-listed shares of Toyota Motor Co <7203.T> dropped 1.2 percent to $80.41 after the automaker said it would continue to halt operations at its 12 main Japanese assembly plants.
Apple Inc and International Business Machines Corp <IBM.N> sank after both received analyst downgrades. Apple lost 4.5 percent to $330.01 and IBM was off 3.8 percent to $155.
(Editing by Kenneth Barry)