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A move by Japan to weaken its currency that sent the dollar spiking against many currencies, combined with lingering concerns over Europe's ability to execute a plan to tackle its sovereign debt crisis, sent stocks sharply lower on Monday.
As of 3:11 p.m. ET, the Dow Jones Industrial Average slid 186 points, or 1.5%, to 12,045, the S&P 500 slumped 21.2 points, or 1.7%, to 1,264 and the Nasdaq Composite fell 34.4 points, or 1.3%, to 2,703.
Monday's weakness comes on the heels of a big week for the markets. Wall Street is on track for its best month in more than two decades, and its best October ever after its blockbuster week. The Dow is up 12.1% for the month and 5% for the year after being in the red of 2011 just weeks ago.
Japan on Monday made a significant intervention in the foreign exchange markets for the second time in less than three months as it tries to push down spiking yen exchange rates. The world's third-largest economy has been pressured from the high relative valuation of the yen, which government officials are blaming on speculation. Indeed, the yen hit a post-World War II high against the dollar last week.
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Japan relies heavily on exports, and the higher the yen, the more it costs companies in other countries to purchase Japanese goods. The country's economy is already reeling from the effects of the devastating earthquake and tsunami that hit in March and impacted major players like Toyota (TM) and Sony (SNE).
The move made waves throughout global currency markets. The U.S. dollar recently soared 2.8% against the yen, while the euro slid 1% against the greenback. The dollar also jumped 1.1% against a basket of six trading partners.
A stronger dollar, however, is bearish for energy prices that are traded in dollars, shoving many commodities and commodity-related shares into the red. The benchmark U.S. crude oil contract fell 38 cents, or 0.42%, to $92.91 a barrel. Wholesale RBOB gasoline slipped 4 cents, or 1.5%, to $2.64 a gallon.
In metals, gold was off $22.00, or 1.3%, to $1,725 a troy ounce. Government debt yields moved lower. The benchmark 10-year Treasury note yielded 2.315% from 2.243%.
Also weighing heavily on sentiment was news on struggling futures-trading firm MF Global (MF). The company filed for bankruptcy protection on Monday. Additionally, The Wall Street Journal reported that a deal it had reportedly been crafting to sell part of itself to Interactive Brokers (IBKR) is now off.
The New York Federal Reserve also said it has suspended new business with the futures trading company until it establishes it is "fully capable" of performing its duties as a primary broker. It is one of 22 primary brokers at the New York Fed.
Additionally, the InterContinental Exchange limited MF Global customers to unwinding positions and said it will no longer recognize the company or its divisions as a guarantor. MF Global is a major player in the futures markets, so the news had an outsized affect on futures trading.
Traders were also paying close attention to Europe, where leaders were still working to solidify a plan to tackle the region's escalating debt crisis. Last week, euro zone policymakers agreed to a wide-ranging plan that includes a 50% writedown on Greek debt held by private bondholders, leveraging of the currency bloc's rescue fund, and recapitalization of European banks. Markets cheered the news, with the Dow soaring 340 points on the day.
However, questions still remained over the euro zone's ability to actually implement the plan before it threatens larger global economies like Italy or Spain.
"After the positive knee-jerk reaction by markets, many now want to see further details of how the increased bailout fund will be financed," Ben Critchley, a trader at London-based IG Index wrote in a note to clients.
Global leaders are set to meet in France at the Group of 20 summit at the end of the week, which is said to be another key milestone for the now two-year-old sovereign debt crisis.
There are no major U.S. economic releases on tap for Monday.
European blue chips tumbled 3.1% to 2,385, the English FTSE 100 fell 2.8% to 5,544 and the German DAX slid 3.2% to 6,141.
In Asia, the Japanese Nikkei 225 fell 0.69% to 8,988 and the Chinese Hang Seng slumped 0.77% to 19,865.