German Finance Minister Wolfgang Schaeuble said European Union governments would adopt a five-point plan at the Brussels meeting on October 23, but "we won't have a definitive solution this weekend," he added.
Optimism the euro zone was making progress in resolving its sovereign debt crisis had pushed the S&P 500 to the top of a two-month trading range.
The index had risen for two straight weeks for the first time since July and recorded its best two-week performance since 2009. The gains had also put the Dow industrials and the Nasdaq back into positive territory for the year.
The Dow Jones industrial average was down 237.84 points, or 2.04 per cent, at 11,406.65. The Standard & Poor's 500 Index was down 23.66 points, or 1.93 per cent, at 1200.92. The Nasdaq Composite Index was down 56.47 points, or 2.12 per cent, at 2611.38.
'Bumps along the road'
"We were bound to see some sort of a retracement after indexes shot up so much in so little time. Now that we realise again that there will be bumps along the road (to recovery in the debt crisis), it's giving investors a reason to sell," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
"The mood is still bearish and will be for a while."
The CBOE Volatility index VIX, Wall Street's so-called fear gauge, rose 16 per cent to 32.82, its highest one-day jump since August.
The cautious comment from Schaeuble also sent the euro lower against the dollar and weighed on financial stocks. The KBW bank index lost 3.3 per cent.
Earnings disappoint
Compounding pressure on the sector were disappointing earnings from Wells Fargo & Co, which fell 7 per cent to $US24.80 and was the biggest weight on the S&P 500.
Events in Europe overshadowed a $US21 billion deal by Kinder Morgan to buy rival El Paso Corp combining the two largest natural gas pipeline operators in North America in a huge bet on the fast-growing market for that fuel.
El Paso's shares surged 24.9 per cent to $US24.46 and Kinder Morgan shares jumped 6.1 per cent to $US28.54.
In its quarterly results, Wells Fargo missed Wall Street's earnings estimates by 1 cent a share as interest income fell below expectations.
Shares of Citigroup edged down 0.8 per cent to $US28.17. The bank reported higher third-quarter earnings as it set aside less money to cover bad loans and recorded an accounting gain available to banks in turbulent markets.
Of the 45 companies in the S&P 500 that have reported earnings, 62 per cent have beaten analyst expectations, according to Thomson Reuters data.
Bloomberg, Reuters