NEW YORK -- Stocks plunged around the world Tuesday as fears spread that Europe's attempt to contain Greece's debt crisis would fail. The euro fell to its lowest point against the dollar in a year.
The Dow Jones industrial average lost 225 points, its biggest drop in three months, erasing a 143-point gain from Monday. The Dow and broader indexes each fell more than 2 percent. Meanwhile, Treasury prices rose on increased demand for safe investments.
Stocks have seesawed in the past week as European countries' efforts to agree on a bailout package for Greece proceeded in fits and starts.
An agreement finally came together over the weekend, but its ballooning size of $144 billion has investors worried that Europe would have an even tougher time assembling an aid package if a larger country such as Spain or Portugal were to get in trouble.
Traders are concerned that problems in Greece and other countries could spill over to the rest of Europe and in turn, the U.S.
The market's plunge wasn't a surprise to some analysts, who have warned for weeks that stocks were due for a retreat. After Monday's rally, the Standard & Poor's 500 index was up almost 14 percent from its 2010 low of 1,056.74, reached Feb. 8.
Investors have spent the past three months largely shrugging off the problems in Europe and focusing instead on the continuing signs of improvement in the U.S. economy.
The stock drop was a reminder that it doesn't take much to rattle investors who are on alert for anything that could disrupt the economic recovery.
The avalanche of selling could continue while investors await answers on Greece, but analysts said most drops are likely to be mild because buyers have been using pullbacks as opportunities to buy.
Tuesday's slump marked the fifth time in six days that the Dow rose or fell by triple digits. The market's moves are reminiscent of the fearsome swings in the fall of 2008 and early 2009, when investors were panicked over how bad the recession would get.
Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, said sudden turns in the market are to be expected as traders wrestle with concerns that stocks are overheated.
"The market has kind of gotten itself into a volatile trading range," Fullman said.
Investors are worried that other cash-strapped European governments also could ask for emergency loans while the economy of the entire region is still recovering.
"It's not as though even the strongest economies of Europe are doing particularly well," said Mike Shea, managing partner at Direct Access Partners in New York. "Why is a plumber in Germany going to bail out Greece or Portugal?"
The Dow fell 225.06 points, or 2 percent, its lowest close since April 7, and the S&P 500 index was down 2.4 percent to 1,173.60. The tech-heavy Nasdaq composite index skidded 3 percent, reflecting the fact that it includes smaller companies seen as riskier investments than the big names in the Dow or S&P 500.
Investors rushed to safer holdings like Treasurys, pushing interest rates sharply lower. The yield on the benchmark 10-year Treasury note fell to 3.61 percent from 3.69 percent late Monday.
The Chicago Board Options Exchange's Volatility Index, which is known as the market's fear gauge, soared 18 percent, a signal that more investors are betting on big drops in the market.
The euro again fell against the dollar as traders turned away from the currency used by 16 European Union countries, including Greece. When investors start doubting a country's economic strength, they tend to sell its currency.
Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York, said Greece's troubles aren't enough to spoil a global rebound but that investors are concerned that this small hole in the world economy will become bigger.
"My suspicion is that this won't end up being large enough to really cause the kind of problems that the market is obsessed with," he said.
The dollar rose against other major currencies, especially the euro. The euro sank as low as $1.2994 in New York, its weakest point since April 2009. It was worth $1.3212 late Monday and had traded as high as $1.51 last November.
The stronger dollar is a negative for investors because it would cut into profits for U.S. companies with sizable foreign operations. When the dollar is up, overseas profits translate into less money. The rising dollar also makes it more expensive for foreign buyers to purchase commodities like oil, which hurts demand.
Crude oil fell to $3.45, or 4 percent, to $82.74 per barrel on the New York Mercantile Exchange.
The drop in commodities hurt companies like aluminum producer Alcoa, which fell 57 cents to $12.58.