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The markets sustained heavy losses on Monday, a stark contrast from last week's strong rally, as traders reacted to another batch of gloomy news on Europe's sovereign debt crisis.
As of 12:40 p.m. ET, the Dow Jones Industrial Average slid 211 points, or 1.8%, to 11,298, the S&P 500 dipped 21.8 points, or 1.8%, to 1,194 and the Nasdaq Composite tumbled 31 points, or 1.2%, to 2,591.
The energy and financial sectors sustained the strongest selling on Monday, but every sector was sharply in the red. Indeed, every Dow component was lower, with industrials like Caterpillar (NYSE:CAT) and Boeing (NYSE:BA) falling the most.
The markets posted a five-day rally last week, with the blue chips soaring 517 points, or 4.7%, pushing the Dow to the highest point since late-August. However, sentiment quickly took a turn for the worse on Monday as the euro zone crisis once again took center-stage.
The European Union and International Monetary Fund told Greece it must enact deeper austerity measures, and cut its deficit further, to qualify for roughly $11 billion in aid due next, which is part of a larger bailout package. The Mediterranean country has been struggling to pay its debts, and will likely default if it doesn't receive this aid tranche. Concerns over Greece, and its potential spillover to larger economies like Italy, have pressured markets for months.
There have also been broader worries over the unity of the 17-member currency bloc, which have also come to focus after German Chancellor Angela Merkel's party was defeated in a state election. There has been political strife in Germany, Europe's biggest economy, over aid it has given to struggling countries, like Greece, and this is yet another upset, market participants say.
European banks such as Barclays (NYSE:BCS) and BNP Paribas, which are likely to be the most directly affected by a sovereign default, were pummeled in trading there.
As a result of fresh instability in equities, traders have once again raced to the perceived safety of U.S. debt. The yield on the benchmark 10-year Treasury note slumped to 1.963% from 2.051%. Gold, which had been higher, changed course and plummeted $25.40, or 1.4%, to $1,790 a troy ounce.
The euro fell 0.43% against the U.S. dollar, while the greenback gained 0.73% against a basket of world currencies.
On the U.S. front, market participants will also be focusing on President Barack Obama's plan to trim the federal budget deficit by some $3 trillion over the next 10 years. The plan is includes a tax on the wealthiest Americans, reforms to entitlement programs, and spending cuts across the spectrum.
Homebuilders' sentiment fell in early September, according to the National Association of Home Builders. The Housing Market Index ticked lower to 14 in September, from 15 the prior month. Homebuilders such as Toll Brothers (NYSE:TOL) and KB Home (NYSE:KBH) may be particularly affected by these data.
Market participants are closely eyeing the Federal Reserve's two-day meeting slated to begin on Tuesday. The central bank is widely expected to take some additional measures to fight growing economic headwinds that policymakers increasingly see as structural, as opposed to temporary.
Energy markets were broadly lower following strength in the dollar. Light, sweet crude slid $2.36, or 2.3%, to $85.61 a barrel. Wholesale RBOB gasoline tumbled 7 cents, or 0.39%, to $2.71 a gallon.
UBS (NYSE:UBS) widened the estimated loss from the rogue trade unveiled last week to $2.3 billion from $2 billion, and also started an internal investigation that will be run by David Sidwell, a former chief financial officer at Morgan Stanley (NYSE:MS).
Netflix (NASDAQ:NFLX) is breaking up its streaming and DVD-by-mail service. The streaming service will continue to be called Netflix, and the rental service will be branded Qwikster. The move comes after the company boosted the price of its services, upsetting many customers.
Tyco International (NYSE:TYC) is splitting into three separate, publicly traded entities, a process that should be completed over the next 12 months.
United Technologies (NYSE:UTX) is in talks to acquire aircraft systems maker Goodrich (NYSE:GR), according to a report by The Wall Street Journal. Goodrich shares soared more than 10% on the report.
The English FTSE 100 tumbled 2.9% to 5,259 and the German DAX plummeted 2% to 5,260.
In Asia, the Japanese Nikkei 225 jumped 2.3% to 8,864 and the Chinese Hang Seng plunged 2.8% to 18,918.