Other pages of loop excerpt show "Page Not Found"

I put the code:

<?php query_posts('posts_per_page=3'); ?>

…above my blog post excerpt loop on the index.php like so:

<?php query_posts('posts_per_page=3'); ?>

<?php if ( have_posts() ) : ?>

          <?php while ( have_posts() ) : the_post(); ?>
              <?php get_template_part( 'content', get_post_format() ); ?>
          <?php endwhile; ?>

          <?php else : ?>

            <h2><?php _e('No posts.', 'foundation' ); ?></h2>
            <p class="lead"><?php _e('Sorry about this, I couldn\'t seem to find what you were looking for.', 'foundation' ); ?></p>

          <?php endif; ?>

          <?php foundation_pagination(); ?>

It does only show 3 posts but when I click on the pagination (say page 2), it says “Page Not Found” on the title bar. The URL was also changed to http://localhost/wordpress/page/2/ but the page still shows the index page excerpts and not the continuation.

What am I doing wrong?