US stocks tumble

US stocks tumbled on Monday, as concerns about Europe returned to the forefront after major credit ratings agencies warned that European leaders had not done enough to tackle the region's debt crisis. The decline was broad. All l0 S&P industry groups ended in negative territory, and most dropped more than 1 percent. Banks took the biggest hit, while technology shares also fell after Dow component Intel, the world's largest chip maker, lowered expectations for quarterly revenue.
After initial elation on Friday over an agreement reached at an EU summit to enforce tighter budget control over the eurozone, the mood turned on Monday as more doubts arose over whether the measures would be sufficient to quell the eurozone debt crisis. "The pact that was agreed upon by European officials still has a long way to go in order to come to fruition, and that leaves the market open to riot," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
Fitch Ratings on Monday said failure by European Union leaders to come up with a "comprehensive" solution to the region's debt crisis has increased short-term pressure on debt ratings of eurozone countries. Investors in Europe gave their verdict by spurning Spanish and Italian debt, causing borrowing costs to rise. The yield on Italy's benchmark 10-year note again came within range of 7 percent, the level considered a danger zone, but recovered to close at 6.60 percent. "We're seeing that sentiment surface in Italian bond yields, and that suggests the market is still highly sceptical of any solution to the risk of significant default that could be brought forward in the coming days," Luschini said.
US banks were among the worst performers on renewed concern that problems in Europe's financial system could spill over to US institutions. The S&P financial sector was down 2.6 percent while Bank of America Corp slumped 4.7 percent to $5.45 and J.P. Morgan Chase & Co lost 3.4 percent to $32.04.
Sentiment had been growing more positive over Europe recently, helping the S&P notch its second week of gains last week, but volatility remains high as market action continues to be dictated by the latest headline. The Dow Jones industrial average was down 162.72 points, or 1.34 percent, at 12,021.54. The Standard & Poor's 500 Index was down 18.70 points, or 1.49 percent, at 1,236.49. The Nasdaq Composite Index was down 34.59 points, or 1.31 percent, at 2,612.26.
Intel Corp, a Dow component, fell 4 percent to $24.00 after cutting its fourth-quarter revenue forecast due to supply shortages of hard disk drives. Intel follows similar moves by DuPont and chip maker Texas Instruments Inc, both of which cut their outlooks last week.
An index of semiconductor makers fell 2.8 percent. Italian one-year borrowing costs stayed close to a record high at an auction. Yields on 10-year Italian bonds briefly threatened the 7 percent level, which is considerable a danger zone. An index of European equities closed down about 1.9 percent.
Moody's and Fitch reminded markets on Monday that the deal on Europe reached last week was not enough to diminish the chance of sovereign ratings downgrades in the eurozone in the near- to mid-term. Last week, S&P put 15 eurozone countries on a watch for potential credit rating downgrades. "There is probably yet another shock required before everybody in the eurozone reads from the same page," said Jean-Michel Six, chief economist at Standard & Poor's, on Monday.
Last week, the European Union decided to set stricter budget rules for the single currency area and to provide up to 200 billion euros in bilateral loans to the International Monetary Fund in response to the turmoil. Resource-related stocks also tumbled as US crude oil futures fell 1.3 percent and copper prices dropped 2.6 percent to a near two-week low on deepening concern over Europe. Energy shares sank 2.4 percent while materials lost 2.2 percent.
Alcoa Inc was off 3 percent to $9.35, and Freeport McMoRan Copper & Gold Inc dropped 3 percent to $38.54. Exxon Mobil Corp slid 1.6 percent. About four stocks fell for every one that rose on the New York Stock Exchange, while on the Nasdaq 72 percent of issues fell. Volume was light, with about 6.28 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.