US stocks sank on Wednesday as cracks appeared in the eurozone's fiscal discipline deal and Italy was forced to pay record interest rates in a new bond issue.
The Dow Jones Industrial Average closed down 131.46 points (1.10 per cent) at 11,823.48.
The broader S&P 500 lost 13.91 points (1.13 per cent) to 1,211.82, while the Nasdaq Composite dropped 39.96 (1.55 per cent) to 2,539.31.
"A declining euro currency is weighing on investors, renewing fears on the bloc's debt crisis," said Scott Marcouiller of Wells Fargo Advisors.
"Adding to the uncertainty were comments from German Chancellor Angela Merkel highlighting the need for time in resolving the region's troubles."
Energy stocks headed lower as New York oil prices plunged more than five per cent after OPEC agreed to keep up current high production levels.
Chevron was hit hard too, with its shares sinking 3.0 per cent, on the news that prosecutors in Brazil said Chevron should shut down its Brazil operations and be fined $US11 billion ($A11.13 billion) over an oil spill off Rio de Janeiro state last month.
Schlumberger was also hit by falling oil prices, losing 4.8 per cent.
Caterpillar pared 4.4 per cent after projecting 2012 revenues in a range below analyst expectations, citing slow growth in developed country markets.
Coca-Cola slipped 0.3 per cent after the firm announced it would pay $US980 million for a stake in Saudi soft drinks producer Aujan Industries.
The bond market drew strength from the falling euro, which sank to its lowest level, below the $US1.30 line, since early January.
The yield on the 10-year Treasury fell to 1.90 per cent from 1.96 per cent on Tuesday, while the 30-year dropped to 2.91 per cent from 3.00 per cent.
As bond prices go up, the yield goes down.