Mounting concerns about Greece have hit the markets after talks between the country and its creditors broke down.
US stocks fell, while major indexes in Europe took much bigger losses.
Greece’s long-running debt crisis took a dangerous turn over the weekend after Greece’s prime minister, Alexis Tsipras, said his government will hold a referendum on proposals made by the country’s lenders.
European officials refused to extend the country’s bailout program, which expires on Tuesday, the same day it is supposed to make a debt payment to the International Monetary Fund.
The European Central Bank also capped its emergency support for the country’s banks. That prompted the Greek government to close banks and announce limits on withdrawals. Daily cash withdrawals are capped at 60 euro (£42) per account.
Karyn Cavanaugh, senior market strategist at Voya Investment Management, said: “Whenever you see any kind of bank line there is in the back of investors’ mind the thought: ’What if it spreads? What if people panic?’
“What’s going on in Europe, of course it’s going to roil markets in the short term.”
But for US investor, she said, “the long-term impact is not that big of a deal”.
The Standard & Poor’s 500 index was down 26 points, or 1.2%, to 2,076. The Dow Jones industrial average fell 220 points, also 1.2%, to 17,723, and the Nasdaq composite fell 72 points, or 1.4%, to 5,009.
The losses were broad. Nine of the 10 industry sectors in the S&P 500 index slumped. The only one that rose was utilities, a traditional safety play.
In Europe, Germany’s DAX lost 3.6% while France’s CAC-40 lost 3.7%. The FTSE 100 index of leading British shares fell 2%. Greece’s stock market was closed.
“The initial market reaction is negative,” said Dan Greenhaus, chief strategist at the brokerage BTIG, in a note to clients.
But Mr Greenhaus thinks that this episode in the European debt crisis is not as dangerous as previous ones.
“We do not think this is Armageddon for the global economy,” he said.
The last time Greece’s troubles shook US markets, there were plenty of other problems. In 2012, Spain had entered a recession, and the worry was that it was too big of a country to rescue. Sputtering US job growth added to the anxiety.
That spring, the S&P 500 index lost 9.9% within two months. Investors sought the safety of US Treasury bonds, driving long-term interest to historic lows.
Back then, the fear was that a financial crisis would spread from Greece to the rest of Europe “because these economies were very fragile,” Ms Cavanaugh said.
The cost to borrow for 10 years topped 7% for Spain and 11% for Portugal in 2012. Even with recent turbulence, Spain’s 10-year bond yields 2.32%, and Portugal’s 10-year bond yields 2.87%.