Stocks closed sharply lower Monday after two rating agencies criticized last week's fiscal pact among European leaders aimed at easing the continent's debt crisis.
Fitch Ratings said the deal to bind Europe's budgets more closely will make little difference. The region will face "a significant economic downturn" as it wrestles with its sovereign-debt crisis for another year or more, Fitch predicted, and Moody's said the summit produced "few new measures."
Said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott L.L.C.: "The problem is the changes they've agreed to go toward solving the root of current problems 12 months from now."
Yields on Italian bonds rose as investors fretted over that nation's debt burden. European stocks fell. Treasury yields fell as investors shifted money into U.S. government debt.
Stocks fell broadly, with declines across all 10 industry groups in the Standard & Poor's 500 index. Falling stocks outnumbered rising ones 4-1 on the New York Stock Exchange.
Intel Corp. dragged the Dow Jones industrial average lower, falling 4 percent after the chip-maker said its fourth-quarter revenue would be lower than expected because of supply-chain problems. Intel is considered a bellwether for the computer industry.
The Dow closed down 162.87 points, or 1.34 percent, at 12,021.39. It was down as much as 243 points before rising in the final hour of trading. Monday's loss erased nearly all the Dow's gains from last week.
The S&P 500 lost 18.72 points, or 1.49 percent, to close at 1,236.47. The Nasdaq composite index dropped 34.59, or 1.31 percent, to close at 2,612.26.
Financial stocks declined steeply as investors feared big banks might be damaged by the turmoil in Europe. Morgan Stanley fell 6.1 percent, Citigroup Inc. 5.4 percent. Bank of America Corp. and JPMorgan Chase & Co. posted the biggest and third-biggest losses in the Dow 30, falling 4.7 percent and 3.4 percent, respectively.
The yield on the 10-year Treasury note fell to 2.02 percent from 2.07 percent Friday, indicating stronger demand for low-risk investments.