Following European markets, U.S. stocks ended sharply lower across the board. Bank stocks were hit especially hard.

The bad news was propelled by Greek Prime Minister George Papandreou's surprise announcement that he would put his country's participation in last week's European debt plan to a voter referendum.

The announcement spooked investors, who feared a public vote would jeopardize the carefully-crafted deal.

Tuesday afternoon, stocks clawed back from the lowest levels of the day following a Dow Jones report that said the referendum is " basically dead." But just minutes before the market close, other news reports said the referendum will go ahead.

In the end, the Dow Jones industrial average (INDU) finished 297 points lower, falling 2.5%, the S& P 500 (SPX) sank 35 points, or 2.8%, and the Nasdaq (COMP) lost 77 points, or 2.9%. Earlier, all three indexes were off around 3%.

" Beggars can't be choosers and the fact that Greece even thinks they have a choice in accepting the EU debt deal is beyond logic," said Kathy Lien, director of currency research at Global Forex Trading, in a note to clients.

Papandreou may be demonstrating " political brinkmanship in order to solidify his position in the view of the public," despite the highly unpopular austerity measures, said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

The referendum could also be Greece's way of warning European officials that they need better terms that the public will support, or else the deal will fall apart, added Luschini. Or it could be a " complete policy blunder."

" Investors don't know what the referendum is going to mean, but they're selling first and will ask questions later," said Luschini. " If Greece ends up demanding different terms to the deal, European officials will be less willing to help. And that could put the prospect of a disorderly Greek default back on the table."

The market's fear gauge, the VIX (VIX), spiked 19% to 35.60. Any reading above 30 signals investor worry. Earlier, the index has surged 25%.

Stocks are coming off sharp losses Monday, as questions and doubts arose regarding the rescue package agreed upon by European leaders last week.

The recent selling puts the S& P 500 and Nasdaq back in negative territory for the year, while the Dow is up just 0.7% in 2011.

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Companies: Bank stocks were hit especially hard in Tuesday's sell-off, with shares of Morgan Stanley (MS, Fortune 500) and Citigroup (C, Fortune 500) shares off nearly 8%. Bank of America (BAC, Fortune 500), JP Morgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500) were down more than 5%.

Pfizer (PFE, Fortune 500) shares rose after the company reported quarterly earnings that beat Wall Street's estimates. The drugmaker was the only gainer on the Dow, and among a handful of S& P 500 stocks in positive territory.

Shares of Baker Hughes (BHI, Fortune 500) plunged, making it the big decliner on the S& P 500. The oilfield contractor missed earnings estimates.

MetroPCS (PCS) shares also fell after the wireless service provider reported lackluster earnings results.

Meanwhile, Bank of America said it will drop its planned $5 debit card usage fee after widespread customer complaints.

World markets: World markets tumbled Tuesday, with banks leading the decline globally. Germany's DAX (DAX) lost 5%, Britain's FTSE 100 (UKX) dropped 2.2%, and France's CAC 40 (CAC40) tumbled 5.4%

Societe Generale, BNP Paribas, and Credit Agricole shed between 12% and 17% in Paris. In Germany, shares of Deutsche Bank (DB) dropped 8%.

Asian markets ended mostly in the red, after a report showed China's manufacturing activity slowed in September. The Shanghai Composite (SHCOMP) was flat, while the Hang Seng (HSI) in Hong Kong fell 2.5% and Japan's Nikkei (N225) shed 1.7%.

Economy: The ISM index show manufacturing activity barely expanded in October, coming in at 50.8. Any level above 50 indicates growth in the sector. But the reading fell from September and came in below expectations.

Construction spending edged up 0.2% in September, down from a 1.6% pickup in August. Economists were expecting spending to rise 0.3%.

Auto sales figures will be coming out throughout the day.

Currencies and commodities: The dollar rose against the euro and British pound, and versus the Japanese yen.

Oil for December delivery slipped $1.00, or 1.1%, to settle at $92.19 barrel.

Gold futures for December delivery fell $13.40, or 0.8%, to settle at $1,711.80 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.00% from 2.18% late Monday.

-- CNN's Elinda Labropoulou in Athens, Greece, contributed to this report. 

The Dow Jones industrial average (INDU) gained 105 points, or 0.9%, the S& P 500 (SPX) rose 16 points, or 1.3%, and the Nasdaq composite (COMP) 62 points, or 2.4%.

Caterpillar (CAT, Fortune 500) led the Dow's gains, after the equipment manufacturer reported record revenue for the third quarter and issued a strong outlook. Caterpillar said the eurozone debt problems and slowing U.S. economic growth are " concerning," but they are not signaling " the onset of recession."

Financial stocks were also big winners, with Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500), and Bank of America (BAC, Fortune 500) shares all rising more than 3%.

Investors were also cautiously optimistic about progress made toward addressing Europe's debt crisis.

Europe's leaders nearing debt solution

Europe's top leaders said Sunday that they were getting closer to finalizing a plan to solve the continent's debt crisis. But with a final agreement not expected before Wednesday, the actual details remained under wraps.

" It seems that European leaders are getting down to the brass tack of a resolution, but there's still nothing to write home about," said Brian Battle, vice president at Performance Trust Capital Partners. " Investors will be holding tight until Wednesday."

Euro headlines offer opportunities - StockTwits

On Friday, U.S. stocks rallied to their highest levels since early August, as investors grew increasingly hopeful about a resolution to Europe's debt crisis.

Friday's gains pushed the Dow back into positive territory for 2011, with all three indexes on track for their best monthly performance in more than a year.

Meanwhile, Monday's increases drove the Nasdaq back into the black for the year, and the S& P 500 was just a few points shy of the breakeven line.

Companies: Health insurer Cigna (CI, Fortune 500) agreed to acquire HealthSpring (HS) for $3.8 billion, sending shares of the health care medical plan provider up more than 30%.

Shares of RightNow Technologies (RNOW) spiked after Oracle (ORCL, Fortune 500) said it will buy the company for $1.5 billion, or $43 a share.

Shares of WebMD (WBMD) advanced, after an SEC filing revealed that Carl Icahn, of Icahn Enterprises, owns 7.94% of the health care information site. Icahn said he believes that WebMD shares are " undervalued from a long-term perspective."

Shares of Netflix (NFLX) tumbled 21% in after-hours trading when the company announced third-quarter earnings after the closing bell. Netflix beat earnings and revenues estimates for the quarter, but said it lost 800,000 U.S. subscribers. Netflix also issued a weaker-than-expected forecast for the fourth quarter.

Economy: U.S. housing finance agencies -- the Federal Housing Finance Agency, with Fannie Mae and Freddie Mac -- unveiled changes aimed at helping troubled homeowners refinance mortgages.

The new rules will allow severely underwater borrowers, who owe more than 125% of the market value of their homes, to get new loans.

Troubled homeowners get a lifeline

New York Fed President William Dudley called for policymakers to make it easier for homeowners to refinance at lower mortgage rates and prop up home prices, while speaking at Fordham University on Monday.

World markets: European stocks ended sharply higher. Britain's FTSE 100 (UKX) added 1.1%, the DAX (DAX) in Germany rose 1.5% and France's CAC 40 (CAC40) gained 1.4%.

Asian markets also rallied, after an HSBC reading on Chinese manufacturing showed activity in the sector rose to a five-month high in October. The report lessens fears that China's economy is slowing too quickly.

The Shanghai Composite (SHCOMP) climbed 2.3%, the Hang Seng (HSI) in Hong Kong surged 4.1% and Japan's Nikkei (N225) rose 1.9%.

Currencies and commodities: The dollar fell against the euro, British pound, and the Japanese yen.

Oil for December delivery gained $3.87 to settle at $91.27 a barrel.

Gold futures for December delivery rose $16.20 to settle at $1,652.30 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell slightly, pushing the yield up to 2.23%. 

The Dow Jones industrial average (INDU) closed down 72 points, or 0.6%. The S& P 500 (SPX) shed 15 points, or 1.3%. The Nasdaq composite (COMP) lost 53 points, or 2%.

The three " E" s -- the economy, Europe, and earnings -- continue to dominate. But with few reports of consequence out of Europe, investors had been focusing on the latest earnings reports, keeping stocks mostly near the breakeven line for much of the day.

But stocks took a hit in the afternoon after the Fed's " Beige Book" painted a picture of an economy that's losing steam. The report made caused investors nervous.

" The market has so been so extraordinarily whippy that people don't like to play in that environment," said Peter Boockvar, equity strategist at Miller Tabak + Co. " It's too dizzying."

Apple's earnings miss dragged the tech sector lower, while insurer Travelers was among the few standouts, giving investors hope for the insurance industry's prospects.

Travelers (TRV, Fortune 500) sparked a rally among insurance stocks when it reported earnings Wednesday. The company told investors that consumers were willing to accept higher insurance premiums. Travelers' stock closed the day up 6%. Chubb (CB, Fortune 500), and Allstate (ALL, Fortune 500) followed suit, ending the day up 0.1% and 2.1% respectively.

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Still, market participants said that trading was relatively light, with many investors remaining gun shy, following the recent volatile roller coaster moves.

On Tuesday, stocks surged into the close, following a report suggesting that Europe's bailout fund may get a big boost.

The gains pushed the Nasdaq into positive territory for 2011, while the Dow is at breakeven. The S& P 500 remains in the red, but the broad index finished at its highest level since Aug. 3.

Economy: The latest economic report showed inflation took a bigger bite out of consumers' wallets in September. A 3.9% jump in prices over the last 12 months marked the biggest rise in three years.

Inflation came in as expected in September, with the Consumer Price Index rising 0.3% during the month.

Core CPI, which strips out volatile food and energy prices, rose 0.1% in September.

For the year, CPI is up 3.9%, the biggest annual change in 3 years.

A separate report showed housing starts were stronger than expected in September, while permits for future building fell.

On Tuesday, Moody's Investors Service downgraded Spain's government bond ratings to A1 from Aa2. This follows similar action taken by Standard & Poor's last week.

Companies: After the market closed Tuesday, Apple (AAPL, Fortune 500), the maker of Macs and iPhones, reported a 39% increase in third quarter sales to $28.3 billion. But the figures fell short of forecasts.

Morgan Stanley (MS, Fortune 500), which has had investors worried about its exposure to Europe, posted a solid $2.2 billion profit before Wednesday's opening bell.

Also late Tuesday, Dow component Intel (INTC, Fortune 500) announced earnings that beat analysts' estimates and sales that hit a new high.

And Yahoo (YHOO, Fortune 500) said reported third-quarter sales and earnings that fell compared to last year, but came in ahead of analyst forecasts.

Early Wednesday, Dow component United Technologies (UTX, Fortune 500) beat revenue estimates.

BlackRock (BLK, Fortune 500), the world's largest money manager, surpassed forecasts on both sales and profit for the quarter.

Shares of Abbott Laboratories (ABT, Fortune 500) rose after the medical company said it will split into two separate publicly traded companies. One company will be focused on medical products, and retain the name Abbott, and the other will focus on research-based pharmaceuticals, with a name to be revealed at a later date.

Abbott also released earnings that came in slightly above expectations.

American Express (AXP, Fortune 500) and eBay (EBAY, Fortune 500) announced quarterly earnings after the markets closed.

World markets: European markets all closed slightly higher. Britain's FTSE 100 (UKX) ended up 0.6%, the DAX (DAX) in Germany gained 0.4% and France's CAC 40 (CAC40) added 0.3%.

Asian markets ended mixed. The Shanghai Composite (SHCOMP) slipped 0.3%, while the Hang Seng (HSI) in Hong Kong rose 1.3% and Japan's Nikkei (N225) ticked up 0.4%.

Currencies and commodities: The dollar fell against the euro, the Japanese yen and the British pound.

Oil for November delivery decreased $2.26 to $86.14 a barrel.

Gold futures for December delivery dropped $9.40 to $1,643.40 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, barely pushing the yield up to 2.16% from 2.15% late Tuesday.