The losses were broad. Each of the 30 stocks that make up the Dow Jones industrial average fell, with IBM Corp. and General Electric Co. losing the most. All 10 company groups in the Standard & Poor's 500 index, the basis for most U.S. mutual funds, lost ground.
Stocks dropped sharply in midmorning trading after the European Union's energy chief was quoted as saying that Japan's nuclear crisis could get worse. Japan's economy, the third-largest in the world after the U.S. and China, accounts for about 10 percent of U.S. exports.
Treasury prices jumped, sending yields to their lowest levels this year as investors piled into investments seen as being more stable. One measure of stock market volatility, the CBOE Market Volatility Index, jumped 18 percent in a sign that investors expect more wild swings.
"Investors are moving away from anything that has an element of risk with it because they don't know what's happening in Japan," said Bill Stone, chief investment strategist at PNC Wealth Management.
The Dow Jones industrial average fell 242.12, or 2 percent, to 11,613.30. It was the worst drop since Aug. 11. The Dow has now lost 3.6 percent over the past three days, its worst three-day loss since last July.
The S&P index fell 24.99, or 1.9 percent, to 1,256.88. The S&P is now down 0.1 percent for the year, having been up as much as 6.8 percent in February. When dividends are included, however, the index has had a total return of 2.4 percent for the year, according to FactSet.
The Nasdaq composite index fell 50.51 or 1.9 percent, to 2,610. It is now down 1.4 percent for the year.
The yield on the 10-year Treasury note fell as low as 3.15 percent, the lowest level this year. In late trading the yield edged up to 3.21 percent.
Japan temporarily suspended work at a stricken nuclear plant after a surge in radiation made it too dangerous for workers to remain there. That came a day after Japan's prime minister said four crippled reactors at a nuclear power plant were leaking dangerous amounts of radiation.
In the U.S., homebuilders tumbled after the Commerce Department reported that new home construction fell to the second-lowest level on record in February, reflecting weak demand. Homebuilders Lennar Corp. and D.R. Horton Inc. each fell more than 2 percent.
Wholesale prices rose last month by the most in nearly two years due to higher energy costs and the biggest increase in food prices in 36 years. Shares of companies affected by higher food costs fell.
Three stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume came to 5.8 billion shares.