The so-called fear gauge jumped nearly 20% as stocks took a tumble and looked ready to close at their lowest point of the year.

After closing Wednesday at 21.6, the Chicago Board Options Exchange's volatility index, or VIX, spiked to an intraday high of 25.49.

The move signals a growing amount of nervousness and uncertainty among investors, who watched the Dow Jones Industrial Average slip more than 200 points.

The spike in volatility also underscores the jitters across financial markets about exposure to risky assets, amid swirling concerns about a mounting sovereign debt crisis in Europe.

An unexpected increase in new U.S. jobless claims—coming just one day before crucial monthly jobs data is due—erased optimism stemming from strong housing and manufacturing data early in the week.

But it was the growing cost of insuring the debt of several European economies, including Greece and Portugal, that spooked investors. Throughout the day, they fled currencies and markets seen taking the biggest hit should debt troubles in Greece or elsewhere lead to a full-blown crisis.

The VIX tracks prices that investors are willing to pay for options on the Standard & Poor's 500 index—often to protect themselves against declines. As a result, the VIX tends to move up when stocks move down, and vice versa.