The Dow Jones Industrial Average fell 108 points, or 0.9%, to 11806, after earlier dropping as much as 174 points. The losses come after the blue-chip Dow rose more than 400 points over the last three trading days.
The action follows reports that a Wednesday meeting of EU finance ministers was canceled, although a scheduled summit among European leaders seeking a way out of the debt crisis is still set to occur.
The cancelled meeting among finance ministers increased concerns about whether Europe will be able to sign off on a plan to recapitalize euro-zone banks, beef up the euro zone's bailout fund and restructure Greece's debt.
"All these headlines imply the likelihood of a deal being announced is getting lower at this point," said Uri Landesman, president of Manhattan-based Platinum Partners. "If it falls apart entirely, you could expect the markets to move significantly lower."
Even as the promised package of measures is still expected to be announced Wednesday evening, market participants are growing increasingly skeptical.
"People just don't know what to think," said Barry James, president of the James Advantage Funds. "Folks are just kind of frozen in place. They don't what's going to happen politically, fiscally or monetarily."
The Standard & Poor's 500-stock index lost 14 points, or 1.1%, to 1240, led lower by financial and industrial stocks. Each of the index's 10 sectors dropped. The technology-heavy Nasdaq Composite fell 35 points, or 1.3%, to 2665.
Stocks have zoomed higher since tumbling into bear-market territory, considered a decline of 20% from a recent high, earlier this month. The S&P 500 gained 17% from its Oct. 4 low through Wednesday's close amid broad hopes that European policy makers would come up with clear solutions to the sovereign-debt crisis.
"It's put up or shut up for Europe," said Nick Kalivas, vice president of financial research at MF Global. "Talk is cheap, we need to see something concrete."
Shares of 3M led the Dow lower, falling 6%, after the conglomerate reported third-quarter earnings and revenue that fell short of expectations. The company also lowered its full-year outlook, noting that a number of its customers reduced inventories in anticipation of slowing demand.
3M lopped off nearly 40 points off the price-weighted Dow.
Meanwhile, DuPont reversed earlier gains and edged down 0.6%. The chemical company reported better-than-expected third-quarter earnings and revenue. It also increased its full-year earnings outlook.
European stocks were mostly lower, with the Stoxx Europe 600 down 0.8%, as investors remained cautious ahead of the summit. Asian markets were mixed. China's Shanghai Composite rallied 1.7%, but Japan's Nikkei Stock Average shed 0.9%.
In economic news, U.S. home prices rose modestly in August from a month earlier, due to seasonal factors. It was the fifth-straight monthly increase, according to the Standard & Poor's Case-Shiller home-price indexes.
But consumer confidence faded this month, with data from the Conference Board reverting back to recessionary levels. The private research group said its consumer-confidence index plunged to 39.8 in October from a revised 46.4 in September.
Gold futures rose to above $1,696 an ounce and crude-oil futures rallied above $93 a barrel. The U.S. dollar slipped against the euro and the Swiss franc, but inched up against the yen.
In corporate news, Netflix tumbled 35% and fell below $80 for the first time in 18 months. The Internet video distributor reported disappointing subscriber numbers and indicated that fourth-quarter earnings and revenue will be lower than expected. The stock traded above $300 in July.
United Parcel Service reported earnings that were slightly above estimates and revenue that was in line with forecasts. The package delivery company's shares dropped 2%.
Texas Instruments' results were better than expected, but the firm offered a disappointing outlook for the fourth quarter, prompting the stock to drop 2.2%.
U.S. Steel dropped 7.6% after posting third-quarter results. Amazon, which reports results after the closing bell, dropped 2.4%. Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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