Wall Street Gripped by Debt Fears, Stocks Tumble

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The major market averages tumbled more than 1% on Monday -- the worst performance in nearly a month -- after concerns over the euro zone debt crisis and an impasse on U.S. debt talks dealt a blow to confidence on Wall Street.

Today's Markets

The Dow Jones Industrial Average slid 151 points, or 1.2%, to 12,506, the S&P 500 dipped 24.3 points, or 1.8%, to 1,319 and the Nasdaq Composite tumbled 57.2 points, or 2%, to 2,803. The FOX 50 fell 13.7 points to 928.

Every major sector struggled on the day, with the financial and energy sectors taking the largest hit. Indeed, Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) both sunk more than 3%, touching the lowest level in two years. In a sign of the tumult on Monday, the VIX, which is a gauge of volatility, spiked 15%.

Weeks after European authorities pulled together a last minute rescue package for Greece to stave off a default that could have sent shockwaves through global financial markets, Italy has been the focus of concerns on Monday.

Italy's level of public debt equates to more than $2.6 trillion, or 119% of its total economic output, according to Euro Stat, making it the second most indebted euro zone country, behind Greece, in terms of debt to GDP. The yield on the country's 10-year bonds surged to a nine-year high as traders grew wary that the crisis that his hit Greece could also make it way to Italy.

The euro plummeted 1.5% against the U.S. dollar on the fears as the greenback gained 1.3% against a basket of world currencies. European shares plunged as well, with an index of 80 euro zone blue chips shedding 2.8%.

On the domestic front, negotiations to raise the debt ceiling hit yet another snag, as lawmakers and the Obama administration failed to come to an agreement over how to cut down the nation's spending.  The debt ceiling, or the level of debt the U.S. can incur, needs to be raised by early August or the Treasury may be forced to take significant measures, including potentially defaulting on U.S. debt.

The U.S. has a "AAA" sovereign debt rating -- the highest possible -- and is considered the benchmark for a slew of financial instruments.  Ratings firms have repeatedly said they will slash the rating should a default occur, which many analysts say can send interest rates spiking and cause another global financial panic, not unlike the one seen after Lehman Brothers went bankrupt in 2008.

Alcoa (NYSE:AA) kicked off earnings season after the bell.  The aluminum giant posted second-quarter earnings from continuing operations of 32 cents a share, just shy of estimates of 33 cents. The company benefited from a substantial jump in the price of aluminum.

Energy markets were also under pressure amid uneasiness over the state of the economic recovery.  Jobs data released last week showed the labor market essentially stalling last month, and was considerably worse than analysts had expected.

Light, sweet crude sunk $1.05, or 1.1%, to $95.15 a barrel.  Wholesale RBOB gasoline was off 2 cents, or 0.71%, to $3.07 a gallon.

Consumer gasoline prices began moving higher over the last week.  A gallon of regular gas costs $3.63 on average, up from $3.57 last week, but lower than the $3.71 drivers paid last month, according to the AAA Fuel Gauge Report.  Prices at the pump, however, are a far cry from the $2.71 paid last year.

Gold climbed $7.60, or 0.49%, to $1,549 a troy ounce. Silver slipped 85 cents, or 2.3%, to $35.70 a troy ounce.

Corporate News

Arch Chemicals (NYSE:ARJ) said it is being bought by Lonza in a deal worth $1.2 billion, sending shares of the anti-microbial maker soaring more than 10%.

Sirius Radio (NASDAQ:SIRI) shares got a boost after the satellite radio firm revealed that it will be added to the Nasdaq 100 index of large, non-financial companies.

Nestle has agreed to pay $1.7 billion to acquire a 60% stake in Chinese confectioner maker Hsu Fu Chi.

Foreign Markets 

The English FTSE 100 fell 1% to 5,929, the French CAC 40 tumbled 2.7% to 3,808 and the German DAX slid 2.3% to 7,230.

In Asia, the Japanese Nikkei 225 fell 0.67% to 10,070 and the Chinese Hang Seng plummeted 1.7% to 22,347.