After staging the strongest rally in two years, the markets were pummeled by worries over the escalating euro zone debt crisis, shoving the blue chips lower by more than 200 points in early trading.

As of 9:32 a.m. ET, the Dow Jones Industrial Average tumbled 206 points, or 1.8%, to 11,040, the S&P 500 slid 20.4 points, or 1.7%, to 1,152 and the Nasdaq Composite dipped 61 points, or 2.5%, to 2,420.

The euro zone debt crisis, which had fallen into the background, once again took the spotlight on Tuesday morning.

French President Nicholas Sarkozy plans on holding an extraordinary meeting with the country's finance ministers and central bank, amid concerns the European nation may lose its pristine AAA credit rating, according to a report by The Wall Street Journal. There were also concerns over how much exposure European banks have to the sovereign debt of countries like Greece, which narrowly averted a default just a month ago.

French banks, such as BNP Paribas, Europe's largest lender by assets, came under intense selling pressure on the news. The euro extended losses from earlier in the session, recently skidding 1%.

Also on the European front, The European Central Bank unveiled plans to buy-up Spanish and Italian bonds earlier in the week, as fears in the credit markets have spread from relatively small economies like Greece to larger ones.