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Update: Dow Down 297 as Greek Shocker Sends Markets Tumbling

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Updated from 1 p.m. EDT

Update: Stocks closed near their lows of the session with the Dow down 297 points, or 2.5%, to 11,656, and has fallen about 645 points from Friday's intraday high above 12,300. Meanwhile the S&P lost 2.8% and the Nasdaq fell 2.9%. The dollar rose sharply vs. the euro and Treasury prices spiked as traders fled from so-called risk assets and reconsidered the wisdom of a 5-week rally that (apparently) peaked last week.  (See: Reality Check After the Rally: No Solutions for Europe or Cash-Strapped Consumers)

Stocks mounted an ill-fated comeback effort Tuesday afternoon amid reports the Greek referendum was DOA. But the rally faded after a Greek government spokesman said the vote will proceed as originally scheduled. Headlines about U.S. lawmakers considering a financial transaction tax further added to the negative mood on Wall Street.

Earlier: Greek Prime George Papandreou sent shock waves across global markets Tuesday after announcing he's holding a confidence vote and public referendum over the Greek bailout packaged approved by the European Union last week. The latest rescue for Greece includes a 50% haircut for Greek bondholders and $180 billion in new aid for the country from the European Financial Stability Facility, which is planned to be increased from $600 billion to $1.4 trillion. (See: Europe Has a Deal: Is The Devil In The Details?)

"The market did not see this Greek referendum coming, which is potentially a killer and could knock the wheels off the bus of the whole (European rescue) plan," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte tells Reuters.

The Dow Jones and S&P were down 2% in recent trading on this news —a drastic turn of events on the heels of the biggest 5-week rally since 1974.

"We trust citizens, we believe in their judgment, we believe in their decision," Papandreou told ruling Socialist party deputies. "In a few weeks the (EU) agreement will be a new loan contract... we must spell out if we are accepting it or if we are rejecting it."

But it seems the majority of Greek citizens are not in favor of the rescue plan agreed to last Thursday, according to a survey conducted after the agreement by newspaper To Vima. Nearly 60 percent of Greeks view the bailout as negative and a threat to the country's sovereignty.

"The decision by Greek PM Papandreou to hold a referendum on the European plan to Save Greece is basically a call to the Greeks of whether they want in or out of the euro more than a vote on the latest bailout plan," writes Miller Tabak's equity strategist Peter Boockvar. "The Greeks don't want more austerity but they want to stay in the euro and that's why the referendum will likely get a yes vote but we unfortunately have to wait until January for this."

As Boockvar points out, the renewed concerns over Greece's debt once again call into question whether the country should remain in the Eurozone. More broadly, the Greek "shocker" calls into question whether the entire European monetary union can withstand the systemic volatility, as The Daily Ticker's Aaron Task and Breakout colleagues Matt Nesto and Jeff Macke discuss in the accompanying clip.

And so, the never-ending story continues.

Stay tuned for continuing coverage and in the meantime check out how one U.S. investment firm's overexposure to European debt led to its demise. See: It's the Leverage, Stupid: Jon Corzine's MF Global Goes Bust