September 7, 2010 8:19 PM EDT
The stock market snapped a 4-day winning streak after the long weekend on renewed worries about Europe's banking system.
The S&P 500 Index closed down 12.67 points, or 1.15 percent, at 1,091.84. The Dow Jones Industrial Average lost 107.24 points, or 1.03 percent, to end at 10,340.69. The Nasdaq Composite declined 1.11 percent.
The euro extended its decline versus the U.S. dollar, losing about 60 pips since 3:00 a.m. (EDT) to trade at EUR/USD 1.2698.
European bank stocks and their U.S. counterparts were hit hard. American-traded shares of Barclays (NYSE:BCS) plunged 5.62 percent, Credit Suisse (NYSE:CS) dropped 3.76 percent and Deutsche Bank (NYSE:DB) lost 3.30 percent. U.S. bank Morgan Stanley (NYSE:MS) fell 3.71 percent and Bank of America (NYSE:BAC) dropped 2.15 percent.
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News from Europe on Tuesday was disappointing. Factory orders in Germany for July unexpectedly fell 2.2 percent from June while economists surveyed by Bloomberg forecast a 0.5 percent gain.
A Wall Street Journal analysis released Tuesday also showed the EU bank stress tests' criteria was even less stringent than previously thought. For example, some banks used short positions to net out their total sovereign debt holdings while others did not count sovereign debt holdings in certain subsidiaries.
Last week, the stock market rallied on better-than-expected U.S. economic data. On Friday, the Bureau of Labor Statistics reported more August private non-farm payrolls gain -- at 67,000 -- than what economists had forecast.
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