The Dow Jones industrial average (INDU) slumped 255 points, or 2.3%. The S&P 500 index (SPX) lost 30 points, or 2.5%. The Nasdaq composite (COMP) fell 81 points, or 3.3%.

The euro fell to a new yearly low versus the dollar, pummeling dollar-traded energy prices and stocks. Bank and tech shares slipped as well. Stock declines were broad-based, with 28 of 30 Dow shares falling.

Stocks rallied Monday after European leaders agreed to provide Greece with $146 billion in loans over three years - with promises of the first payment due to arrive ahead of a key May 19 deadline, when the nation owes over $11 billion.

The bailout package - funded jointly by the European Union and the International Monetary Fund - seemed to set a template for other bailouts, should they be needed. Greece is one of the so-called PIIGS - five European nations with heavy debt loads that investors fear could destabilize the euro and slow global growth should they all default. Portugal, Italy, Ireland and Spain are the other four.

But relief about the plan turned to worries about its execution Tuesday on concerns that not all of the 15 other euro zone nations would be willing to get on board. Influential Germany said Monday it would commit to loaning $40 billion to Greece over the three years, but it's not yet clear whether the whole group will be willing to participate.

In addition, after a steady advance for about 8 weeks, the Dow and Nasdaq fell last week, with investors pleading exhaustion.

"I think a little volatility is back," said Dave Hinnenkamp, CEO of KDV Wealth Management. "We're getting triple-digit moves (on the Dow) like we haven't seen in a while. We've had some big moves but the market hasn't gone anywhere."

On Tuesday, the CBOE Volatility index (VIX), or the VIX, Wall-Street's so-called fear gauge, spiked 17% to hit the highest level since Feb. 11.

Hinnenkamp said there's a battle going on between the improved earnings and everything else - including the euro zone debt issues, the oil spill and China's efforts to curb inflation without slowing growth.

World markets: In overseas trading, European markets tumbled, with France's CAC 40 down 3.1%, Germany's DAX down 2.5% and London's FTSE down 2.3%.

Asian markets fell, with Hong Kong's Hang Seng index down 0.2%. The Japanese Nikkei was closed for a national holiday.

In China, the Shanghai Composite lost 1.2% after the country said manufacturing grew at a slower-than-expected pace in April. Investors were also reacting to news over the weekend that China has boosted its bank reserves.

The dollar and commodities: The dollar rallied versus the euro and fell against the yen.

U.S. light crude oil for June delivery fell $2.88 to $83.31 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery fell $2.70 to $1,180.60 per ounce.

Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.63% from 3.70% Monday. Treasury prices and yields move in opposite directions.

Economy: Pending home sales rose 5.3% in March after climbing 8.3% in February. A consensus of economists surveyed by Briefing.com expected sales to increase 5%.

Factory orders were 1.3% higher in April after rising 1.3% in March, the Commerce Department said. Economists thought orders would fall 0.2%.

President Obama was due to speak to the Business Council in Washington about the economy.

Quarterly results: A number of major companies reported quarterly results before the start of trading.

Among the standouts: Dow component Merck (MRK, Fortune 500) reported higher quarterly revenue and earnings that topped estimates.

Fellow Dow component Pfizer (PFE, Fortune 500) also reported higher quarterly revenue and earnings that topped estimates.