Greek referendum announcement shocks world stocks

— -- Stocks fell sharply Tuesday, with the Dow Jones industrial average collapsing 270 points to 11,682 at midday, on news the pact to hold the Euro together may be crumbling.

The market rout came after an unexpected move by Greek Prime Minister George Papandreou to call a referendum on an agreement reached last week to shore up the euro. European stock indexes also fell broadly.

The multi-nation agreement, which would result in major economic belt tightening by Greece, is largely unpopular in the indebted nation. Tuesday's big losses extended a losing day for stocks on Monday, where stocks lost 2.5%.

Investors are now dealing with the increased threat the Greek debt crisis could get much worse. Putting the unpopular pact to a vote makes a "disorderly" default by Greece more likely, debt rating agency Fitch Ratings said.

"The Greek referendum puts the connections between European countries at risk, from free-trade agreements to the common currency," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

Meanwhile, investors are also dealing with questions over the shock caused by the default of large investment management firm, MF Global Holdings.

The company, led by former New Jersey governor Jon Corzine, filed for bankruptcy after concerns about the company's holdings of European government bonds caused its business partners to pull back from the firm and ratings agencies to downgrade its debt.

At midday, the Standard & Poor's 500 index was down 32 points, or 2.6%, to 1221 and the Nasdaq composite index shed 75, or 3%, to 2609.

The yield on the 10-year Treasury note sank to 2.01% from 2.16% late Monday, a steep drop. Yields fall when bond prices rise. The dollar rose to $1.36 for a euro.

Bank stocks fell hard as investors worried about how exposed U.S. banks are to European debt. Citigroup lost 4.5%. Morgan Stanley dropped 6.5%. JPMorgan Chase fell 4.2%, the largest drop among the 30 stocks in the Dow.

European market indexes fell even more. Germany's DAX index fell 4.7% and France's CAC-40 fell 4.8% before trimming their losses slightly.

French banks have large holdings of Greek government bonds and would be exposed to severe losses if Greece goes through a disorderly default on its debt. Societe Generale plunged 16% in Paris trading and BNP Paribas lost 11%.

The two-day drop comes after U.S. stocks closed out their best month in nearly 10 years. The S&P 500 rose 10.8% in October, the biggest gain since December 1991.

Earlier in Asia, stocks fell sharply. Japan's Nikkei 225 index retreated 1.7% to close at 8,835.53. Hong Kong's Hang Seng lost 2.5% to 19,369.96 and Australia's S&P/ASX 200 shed 1.5% to 4,232.90. Benchmarks in Singapore, India, Indonesia and Thailand were also down.South Korea's Kospi gained marginally to 1,909.63 and China's Shanghai Composite Index added 0.1% to 2,470.02.

Contributing: Associated Press