Investors dumped U.S. stocks on Tuesday as fears grew that the financial rescue package for Greece might not be enough to prevent a sovereign debt crisis from spreading to other weak euro zone countries.

Wall Street's major indexes slid more than 2 percent, echoing the wave of fear that gripped financial markets as investors fretted the crisis in Europe could derail the global economic recovery. European shares dropped 3 percent, while commodities sank and the euro hit a one-year low against the dollar.

Technology stocks, top gainers for the year, were pressured the most, with the PHLX semiconductor index <.SOXX> shedding 5.5 percent. In midafternoon trading the Nasdaq was down more than 3 percent, on track for it worst day in at least seven months.

You can see how Greece will come out of this, but a contagion is definitely a problem, said Keith Springer, president of Capital Financial Advisory Services in Sacramento, California.

If one (euro zone country) falls, they continue to fall because everybody's tied together. It really is the European equivalent of the U.S. financial crisis when our banks failed.

Striking public workers in Greece challenged their government's agreement to implement austerity measures under a bailout deal with the European Union and the International Monetary Fund, heightening worries about Athens' ability to enforce deeper spending cuts.

The Dow Jones industrial average <.DJI> dropped 238.14 points, or 2.14 percent, to 10,913.69. The Standard & Poor's 500 Index <.SPX> lost 29.03 points, or 2.41 percent, to 1,173.23. The Nasdaq Composite Index <.IXIC> shed 80.13 points, or 3.21 percent, to 2,418.61.

FEAR GAUGE JUMPS

It looks like we've got some profit-taking on early-cycle exporters, companies with a big global presence over in Europe, said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

I consider large-cap techs fairly significant exporters. We're taking profits out of technology, energy and industrials.

Energy shares were among the biggest losers as crude oil futures fell more than $3 to $82.80 a barrel. Chevron Corp was down 2.8 percent at $80.55, and the S&P energy index <.GSPE> slid 2.8 percent.

Even so, the day's drop had not broken major support except for a short-term bottom at 1,181 on the S&P 500, the intraday low hit last week.

For initial support most people are watching the 50-day moving average, which is at 1,168, said John Schlitz, chief U.S. market technician at Instinet in New York.

The CBOE Volatility Index <.VIX>, Wall Street's so-called fear gauge, jumped 22.6 percent to rise to its highest intraday level since February.

Encouraging U.S. economic data on manufacturing and housing failed to provide support. Reports showed new orders received by U.S. factories in March unexpectedly increased and pending home sales rose to a five-month high.

On the upside, better-than expected earnings from drug makers Merck & Co Inc and Pfizer Inc boosted those shares by about 2 percent each.

(Additional reporting by Rodrigo Campos and Caroline Valetkevitch; Editing by Padraic Cassidy)

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