Stocks fell the most in nearly three months on Tuesday, with the Dow tumbling more than 200 points as the risk of a disorderly default in Greece and a reduced growth target in China dented recent confidence in the global economic recovery.

The CBOE Volatility Index or VIX <.VIX>, Wall Street's anxiety gauge, jumped nearly 18 percent to 21.23, rising above its 50-day average for the first time since November. A dozen stocks fell for every issue that rose the New York Stock Exchange, with bank and miner shares among the top decliners.

Equities' recent gains have been supported in part by expectations that Europe's credit crisis will be contained and China's economy will avoid a hard landing. Recent data seems to partly undermine these assumptions.

It's one of those days when we are seeing bits of negative news come into one, all at the same time, said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research.

The move in the VIX may seem exaggerated because of the percentage move, but considering the Dow is down 200 points, it's not surprising.

The VIX has been near 15 to 16 for most of this year, well below the historical mean of 21, making it more sensitive to an upward move.

Europe's downturn appeared ready to turn into a full-fledged recession due to a collapse in household spending, exports and manufacturing in the final months of 2011, the European Union said.

Brazil's gross domestic product expanded by a meager 2.7 percent in 2011, data showed Tuesday, adding to concerns after China cut its growth outlook earlier in the week. Expected growth in emerging markets has been a main catalyst for equities' gains.

The Dow Jones industrial average <.DJI> was down 218.30 points, or 1.68 percent, at 12,744.51. The Standard & Poor's 500 Index <.SPX> was down 23.19 points, or 1.70 percent, at 1,341.14. The Nasdaq Composite Index <.IXIC> was down 46.48 points, or 1.58 percent, at 2,904.02.

Despite the decline, the S&P 500 is still up almost 7 percent for the year. If fourth-quarter gains are included, the benchmark index is still up almost 20 percent since September 30. Analysts have expected a pullback for weeks, citing an overstretched market.

A group representing bondholders warned a default could cause more than 1 trillion euros ($1.3 trillion) of damage to the region. Creditors have until Thursday night to accept a bond swap in which they would lose almost three-quarters of the value of their bonds.

As part of a reassessment of possible collateral damage if the Greek deal with private debt holders collapses, traders sold the stocks of large banks on concern about their exposure to Greece.

The S&P financial sector index <.GSPF> dropped 2.5 percent and the KBW bank index <.BKX> fell 2.7 percent. Morgan Stanley lost 5.5 percent to $17.29.

A gauge of European bank shares <.SX7P> tumbled 4.2 percent.

Greece has no plans to extend the deadline on its bond-swap offer to private creditors, officials said, dismissing market rumors that the date may be changed to increase participation in the offer.

Basic materials stocks also slid as commodity prices fell, pressured further by a stronger U.S. dollar.

Aluminum producer Alcoa Inc lost 4 percent to $9.48 and Freeport-McMoRan Copper & Gold Inc fell 3.1 percent to $39.20.

(Reporting By Angela Moon; Editing by Jan Paschal)

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