Yields on benchmark 10-year bonds in Spain rose to 5.88 percent after peaking above 5.9 percent, as the government announced a new round of austerity measures. The proposed combination of tax hikes and spending cuts would trim the budget deficit by an additional $13 billion. In late March, the government announced plans to trim the deficit by $30 billion.
By close of trading on Wall Street, the Dow Jones industrial average shed 213.66 points or 1.65 percent to 12,715.93. The tech-heavy Nasdaq composite index gave up 55.86 points or 1.83 percent to 2,991.22. The Standard and Poor's 500 index dropped 23.61 points or 1.71 percent to 1,358.59.
On the New York Stock Exchange, 463 stocks advanced and 2,609 declined on a volume of 4.4 billion shares traded.
The 10-year treasury note rose 18/32 to yield 1.989 percent.
The euro fell to $1.308 from Monday's $1.3106. Against the yen, the dollar dropped to 80.68 yen from Monday's 81.49 yen.
In Tokyo, the Nikkei 225 index shed 0.09 percent, 8.24, to 9,538.02.
In London, the FTSE 100 index shed 2.24 percent, 128.12, to 5,595.55.
2014: The Year in Music [PHOTOS]