By Carla Mozee

Latin American stocks slid Tuesday as ratings cuts on the sovereign debt of Greece and Portugal heightened investor worries that the countries' economic troubles may end up hurting economies worldwide.

Brazil's equity benchmark, the Bovespa, led declines in the region with its drop of 2.4%. The decline pushed the Bovespa into the red on a year-to-date basis.

Mexico's IPC fell 2.2%, Argentina's Merval fell 2% and Chile's IPSA lost 0.7%.

U.S. stocks were hit as well, with the S&P 500 Index (SPX) down 1.7% and the Dow Jones Industrial Average (DJI) off 144 points to 11, 060. At the same time, the CBOE Market Volatility Index (VIX), known as Wall Street's fear gauge, jumped as much as 22% during the session.

The sell-off in the markets accelerated following Standard & Poor's decision to cut Greece's debt to the junk rating of BB+. It also lowered Portugal's long-term ratings by two notches to A-. The outlooks on the ratings are negative.

The ratings downgrades "have set off another nasty bout of risk aversion. The worry is now that the fiscal/debt crisis in Greece is set to reach a cathartic climax much sooner than had been anticipated," wrote Citigroup Latin America strategists Geoffrey Dennis and Jason Press in a clients' note Tuesday.

As individual stocks were hit, so were exchange-traded funds. The iShares Brazil Index Fund (EWZ) and the iShares MSCI Mexico Index Fund (EWW) each fell 3%. The iShares MSCI Chile Investable Index fund (ECH) lost 2%.

If Greece were to default on debt, Latin American equities would be affected by "a fair amount" in the short-term, but by "very little" in the long-term, wrote the Citigroup strategists.

"The region's sound fundamentals are intact. While we understand that investors may want to be more defensive near-term, we would still recommend buying this sell-off. Mexico is likely to remain more defensive than Brazil near-term."

The U.S. dollar gained ground against the currencies of Mexico and Brazil as well as the euro as investors sought shelter from the safe-haven status of the greenback. Mexico's peso traded at 12.335 per dollar compared with 12.153 on Monday. The real fell to 1.766 from 1.744 in the previous session.

The dollar index (DXY), which measures the U.S. unit against a weighed basket of six other currencies, rose 0.7% to 82.04.

The rise in the dollar pushed dollar-denominated commodities prices lower, and prompted selling in resources-related stocks. In Brazil, shares of oil giant Petrobras (PBR) dropped 2.2% as crude oil for June delivery fell 2.1% to $82.44 a barrel, the lowest close for most-active contract in nearly a month.

Copper for July delivery slumped 4.6% as concerns that economic troubles in the euro-zone will lead to a pullback in demand for the industrial metal. Platinum fell 1.4% and silver fell 1.2%.

Sao Paulo-traded shares of Vale (RIO), the world's largest iron-ore provider, slid 3.4%. Shares of sugar and ethanol producer Cosan (CZZ) fell 4.6% and pulp and paper producer Fibria (FBR) gave up 4.7%.

In Mexico, copper producer Grupo Mexico shares fell 2.6%. Also lower were shares of Cemex (CX), down 3.8% after the cement supplier posted a first-quarter loss from continuing operations of $341 million as sales fell 10% to $3 billion from the year-ago period.