On Wdnesday afternoon the Nasdaq briefly turned positive and the S&P rose to break-even after news that Greece will get 5.2 billion euros in emergency aid.
The turmoil in Europe has driven Wall Street's slide and more investors were hedging against potential further losses. The Dow fell for a sixth straight day and the S&P touched a two-month low before cutting losses.
"It's a very difficult market to trade in. I'm advising my clients to just hedge out all the way into July because we are going to see some heightened volatility like today for awhile," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab in Austin, Texas.
The CBOE Volatility index, Wall Street's "fear gauge," rose 5.8 percent to 20.15, the highest close in two months.
The yield on the 10-year Spanish bond climbed above 6 percent, seen as a troublesome level among investors, after Spain said it will demand banks set aside another 35 billion euros ($45 billion) against loans to the ailing building sector. Huge bank losses have raised fears that the country may need an international bailout.
Despite the late-day rebound, eight of 10 S&P sectors ended the day lower, and nearly two stocks fell for every one that rose on the New York Stock Exchange.
The Dow Jones industrial average .DJI finished down 97.03 points, or 0.75 percent, at 12,835.06. The Standard & Poor's 500 Index .SPX was down 9.14 points, or 0.67 percent, at 1,354.58. The Nasdaq Composite Index .IXIC fell 11.56 points, or 0.39 percent, at 2,934.71.
The S&P financial sector index .GSPF was hurt by the news about Spanish banks, closing down 1.1 percent.
U.S.-listed shares of Banco Santander SA (STD.N) fell 6 percent at $6.01. The FTSEurofirst 300 index .FTEU3 ended at its lowest level in four months. .EU
After the market closed shares of Cisco Systems Inc (CSCO.O) fell 8.3 percent to $17.23 in extended trade. Cisco beat quarterly earnings estimates, but the network-equipment maker forecast earnings below Wall Street's expectations. Nasdaq futures were off 17.75 points.
Walt Disney Co (DIS.N) reported quarterly earnings that beat expectations late on Tuesday on strong theme park attendance and cable advertising revenue. Shares of Disney, a Dow component, rose 1.6 percent to $45.02, after earlier hitting a lifetime high at $45.80. The success of its superhero movie, "The Avengers," also helped Disney's stock.
Macy's Inc (M.N) earnings rose more than expected, but the stock fell 3.7 percent to $38.05 on disappointment that the department-store chain didn't raise its outlook.
With 441 of the S&P 500 companies reporting results through Wednesday morning, 66.7 percent exceeded estimates, according to Thomson Reuters data. That was down from more than 80 percent at the start of earnings season.
Volume was 7.79 billion shares on the New York Stock Exchange, the Nasdaq and the NYSE Amex, above the daily average of around 6.8 billion.