Euro Setbacks, MF Global Spark Strong Selling

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A move by Greece that may blow a hole in Europe's plan to tackle its debt crisis, coupled with a flurry of headlines regarding now bankrupt derivatives brokerage MF Global, sent the markets diving in tumultuous trading.

Today's Markets

As of 3:20 p.m. ET, the Dow Jones Industrial Average slid 244 points, or 2.1%, to 11,709, the S&P 500 dropped 28.5 points, or 2.3%, to 1,225 and the Nasdaq Composite fell 63.9 points, or 2.4%, to 2,620.

Trading was ferocious on Tuesday, with the VIX, considered to be Wall Street's fear gauge, spiking as much as 25%.  Market participants were closely watching a slew of developments on Europe's debt crisis and reports that MF Global may have improperly used customer funds that should have been separated from its proprietary trading operation. Indeed, the Dow staged a triple-digit comeback on a report from Dow Jones Newswires saying a member of Greece's ruling socialist party called the referendum that spooked traders "basically dead" just to fall again amid worries over MF Global.

Yields on U.S. government bonds fell as traders raced into the perceived safe-haven assets.  The benchmark 10-year Treasury note yielded 2.006% from 2.11%.

MF Global Woes

Market participants were paying close attention to the unfolding MF Global (NYSE:MF) situation. The once powerful derivatives player filed for Chapter 11 bankruptcy protection on Monday after a soured bet on European sovereign debt sent investors and customers fleeing, according to several media reports.

Regulators were ramping up a probe into the company's bookkeeping after millions of dollars reportedly went missing.  Market participants are say it is possible that the company misused client cash as customers pulled their money and business partners demanded collateral to guarantee trades in its final month before it filed for Chapter 11 bankruptcy protection.

Greece Move May Put EU Plan in Jeopardy

Greece's Papandreou unexpectedly called for a referendum of the country's bailout package after the closing bell on Monday.  Citizens would reportedly be asked to either approve or deny the bailout from various international lenders, which the beleaguered nation needs to stave off a default that analysts say could pressure much bigger European economies, like Italy.

The Greek public has vehemently, and sometimes violently, protested the austerity measures lenders have pushed for to cut the country's tremendous public debt load.  Indeed, a recent poll shows more than half of Greek voters are against the measures, according to The Wall Street Journal.

"The latest developments increase the uncertainty around the euro area's response to the crisis," analysts at Nomura wrote in a note to clients. "If the referendum fails it might have wider repercussions, and not only in Greece given the general discontent at the peripheral austerity drive."

European leaders, who are already facing strong political criticism for using public funds to support Greece, may be faced with a difficult decision if the referendum fails.  Analysts say they would have to either ease the bailout terms, or risk an almost certain default that would threaten the entire currency bloc, and potentially global economies.

At the same time, if the terms of the bailout were lightened, it may signal to other countries seeking bailouts that such measures provide leverage in negotiations.

Still, European leaders remained optimistic following Greece's move: "We fully trust that Greece will honour the commitments undertaken in relation to the euro area and the international community," the European Council and European Commission said in a joint statement. German Chancellor Angela Merkel and French President Nicolas Sarkozy -- who represent Europe's biggest economies -- reiterated their support for the plan, and said they would speak with Greece at an upcoming summit in France later this week.

European blue chips plunged 5% on the day. The euro was off 0.77% against the U.S. dollar, which represents a strong comeback from session lows. Euro zone banks, seen to have a particularly large exposure to sovereign debt, took a strong beating.

France's three biggest banks, Societe Generale, BNP Paribas and Credit Agricole, and Germany's Deutsche Bank were all off more than 10% in afternoon trading there. Meanwhile U.S. investment bank Morgan Stanley (NYSE:MS), which has been the subject of concern over its European debt holdings, fell as much as 10%.

Global Manufacturing Data Miss Expectations

Also concerning to the markets are fresh data showing the pace of manufacturing expansion in the U.S. and  China -- two of the world's biggest economies -- unexpectedly slowed down to a crawl in October from September.

The Institute for Supply Management Manufacturing PMI gauge fell to 50.8 in October from 51.6 in September and missing expectations of 52. Readings above 50 point to expansion, while those below indicate contraction.

Meanwhile, construction spending rose 0.2% in September from August, slower than the 0.3% pace economists' had anticipated.

Energy and metals futures were mixed on the day, paring big losses.  The benchmark U.S crude oil contract sunk $1.00, or 1.1%, to $92.19 a barrel.  Wholesale RBOB gasoline rose 2 cents, or 0.72%, to $2.62 a gallon.

Gold slid $13.40, or 0.78%, to $1,712 a troy ounce.

Corporate News

Bank of America (NYSE:BAC) said it would pull the $5 monthly debit card fee it planned on charging customers.

Yahoo! (NASDAQ:YHOO) unveiled plans to buy interclick (NASDAQ:ICLK) for $270 million, a 20% premium to the company's Monday closing price.

Foreign Markets

European blue chips plunged 5% to 2,248, the English FTSE 100 slid 3.5% to 5,349 and the German DAX plummeted 5.8% to 5,785.

In Asia, the Japanese Nikkei 225 slid 1.7% and the Chinese Hang Seng dipped 2.5% to 19,370.