Wall Street stocks tumbled on Tuesday on rising concerns the euro zone's debt crisis could hurt the global economy.

Major U.S. banks were among the day's biggest decliners, with the KBW Bank index off nearly 2 percent.

Nervous investors channeled cash into less risky assets as doubts resurfaced over the political will of Italy and Greece to push through tough budget and debt measures demanded by other euro zone members, while Germany hardened its stand against giving them more aid.

The spillover from Europe's heavy selloff was expected, and not just to our market here, but globally, said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

Until things settle down over there, this kind of a selloff could go on for a day or for a week.

The Dow Jones industrial average slid 212.52 points, or 1.89 percent, at 11,027.74. The Standard & Poor's 500 Index was down 21.76 points, or 1.85 percent, at 1,152.21. The Nasdaq Composite Index took off 41.55 points, or 1.68 percent, at 2,438.78.

European shares fell to their lowest close in more than two years on Tuesday on worries the euro zone debt crisis was deteriorating, while the PHLX Europe sector index slumped 4.4 percent. U.S.-listed shares of Credit Suisse fell 13.5 percent to $23.69.

The Financial Times reported several big U.S. banks, in talks with state officials on settling claims of improper mortgage practices, were offered a deal to limit legal liability in return for a multibillion-dollar payment.

Several brokerages including Nomura cut their price targets on big lenders.

Bank of America Corp lost 3.2 percent to $7.02 and JPMorgan Chase & Co fell 3.7 percent to $33.34.

Sunoco Inc rose 4 percent to $37.55 after the energy company said it plans to exit its refining business and focus on its logistics operations.

Temple-Inland Inc jumped 25 percent to $30.81 after International Paper Co agreed to buy the packaging firm for $32 per share. International Paper rose 4.2 percent to $26.55.

European and U.S. stocks briefly pared losses after data showed the pace of expansion in the U.S. services sector unexpectedly accelerated in August. Data on Friday showed zero net employment growth, stoking recession concerns.

Trading volume was lower than usual at 3.97 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq.

Decliners beat advancers by more than six-to-one on the New York Stock Exchange. On Nasdaq, decliners were beating advancers by about four-to-one.

(Reporting by Angela Moon; editing by Jeffrey Benkoe)

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