NEW YORK - US stocks ended sharply lower on Tuesday as investors were rattled by the idea of a referendum in Greece on its unpopular austerity plan.

Stocks took a heavy blow in the morning after Greek Prime Minister George Papandreou unexpectedly called for a referendum on whether to accept incremental austerity in exchange for a restructuring of its debt by foreign governments, banks and international organizations. Investors fretted that the measure will put Greece's EU membership at risk and worsen the current euro zone crisis.

Adding to pressures, banks fell hard as investors worried about how exposed US banks are to European debt amid the abrupt bankruptcy of the securities firm MF Global. Citigroup plummeted 7. 88 percent. Morgan Stanley dropped 7.82 percent. Both Bank of America and JPMorgan Chase dived nearly 6 percent, the worst performers among the 30 stocks in the Dow.

Stocks erased about one-third of their losses in midday trading after a Greek Socialist Party official said a referendum was " basically dead."However, major indexes took another downturn in the final hour of the session as Papandreou said he will hold to the referendum.

As of Tuesday's close, the Dow Jones industrial average tumbled 297.05 points, or 2.48 percent, to 11,657.96. The Standard & Poor's 500 plunged 35.02 points, or 2.79 percent, to 1,218.28. The Nasdaq Composite Index declined 77.45 points, or 2.89 percent, to 2,606.96.