NEW YORK (CNBC) -- Stocks accelerated their selloff to trade near session lows Wednesday as worsening fears over the euro zone crisis rattled investor sentiment.
The Dow Jones Industrial Average tanked over 400 points, led by Hewlett-Packard and JPMorgan.
The S&P 500 and the Nasdaq also declined sharply. The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged near 34.
All 10 S&P sectors were firmly in negative territory, led by banks and materials.
Stocks slumped further after the Greek President called for a meeting of political leaders on Thursday after the nation's two main political parties failed to agree on who will lead the country's interim government.
Earlier, Reuters reported that Greek party leaders had agreed on house speaker Filippos Petsalnikos to head Greece's new coalition government, but the decision may have been withdrawn.
In addition, EU officials said they have no plans in place for a financial rescue of Italy, and adding the euro zone was not even considering extending a precautionary credit line to Rome.
"The problem is, we've reached the domino phase, so it's not about Greece anymore-it's Italy and if Italy has a problem, then France has a problem too," said Brian Battle, vice president of trading at Performance Trust Capital Partners. "The hope that there would be a solution is now non-existent."
Italian borrowing costs reached a breaking point, hitting 7.5 percent earlier, a level that previously drove other euro zone nations such as Greece and Portugal out of credit markets and forced those countries to seek bailouts from external assistance from the EU and IMF. However, most strategists worry that Italy is too large to bail out.
Concerns over Italy overshadowed gains in the previous sessionafter Italian Prime Minister Silvio Berlusconi announcedhe would resign once a series of austerity measures had been put in place.
Christine Lagarde, head of the IMF, warned Europe's debt crisis risked plunging the global economy into a "lost decade," and said it was up to rich nations to shoulder the burden of restoring growth and confidence.
On the earnings front, GM posted a better-than-expected profit as the automaker gained market share in North American and Asian markets. However, shares tumbled with the broader market.
Macy's reported results that beat estimates and also raised its full-year outlook.
HSBC slumped after the financial giant cited a"very challenging" outlook for the global economy and posted a 36 percent plunge in underlying profits, due to lower investment banking income and a gain in bad debts in the U.S.
Cisco and Green Mountain are scheduled to report earnings after-the-bell tonight.
Adobe Systems plunged more than 10 percent to lead the S&P 500 laggards after the tech firm said it is planning to lay off 750 employees and take a charge of up to $94 million as part of a restructuring initiative.
Best Buy was the only stock trading higher on the S&P 500 after Goldman Sachs raised its EPS estimates on the electronics retailer.
Treasurys pared their gains after the government auctioned $24 billion in 10-year notes at a high yield of 2.03 percent and bid-to-cover of 2.64.
On the economic front, U.S. wholeseale inventories fell in September for the first time since late 2009, according to the Commerce Department.
And weekly mortgage applications jumped last week, according to the Mortgage Bankers Association, thanks to increased refinancing demand as interest rates dropped.
Meanwhile, China's annual inflation rate fell sharply in October in a further pullback from July's three-year peak.