Stocks fell on Monday, with major indexes falling more than 1 percent, on concerns about the euro-zone debt crisis and a slowdown in global industrial demand, prompting investors to buy more protection against a further market decline.
The CBOE Volatility Index <.VIX>, Wall Street's fear gauge, jumped as demand for call options on the VIX soared.
Industrial and technology stocks, closely related to growth, were the day's top decliners. The S&P industrial sector index <.GSPI> fell 1.7 percent and the S&P info-technology sector index <.GSPT> declined 1.6 percent.
The tone of the market has turned substantially more cautious, said Jonathan Golub, strategist at UBS in New York.
A number of important economic indicators have recently turned south, pointing to a soft patch, he said, referring to weak data on manufacturing and business sentiment that were released last week.
The Dow Jones industrial average <.DJI> was down 161.28 points, or 1.29 percent, at 12,359.76. The Standard & Poor's 500 Index <.SPX> was down 17.54 points, or 1.32 percent, at 1,315.73. The Nasdaq Composite Index <.IXIC> was down 47.07 points, or 1.68 percent, at 2,756.25.
Reflecting an increase in volatility and investors' concerns, the VIX itself was up 5.2 percent at 18.34 in early afternoon trading.
The VIX moves inversely to the S&P 500. When the benchmark S&P 500 declines, the magnitude of the move in the VIX is more significant.
About 22,000 puts and 76,000 calls on the VIX had traded by midday, according to options analytics firm Trade Alert. The put-to-call ratio was 0.29, compared to the 22-day moving average of 0.49.
Unlike before, I don't see the market brushing off the European issues this time because there are heightened concerns about the global industrial slowdown, said James Dailey, portfolio manager at TEAM Asset Strategy in
The dollar rose, hurting commodity prices. U.S. crude oil futures lost 2.6 percent to $97.48 a barrel. Manufacturing data out of China showed more weakness ahead, which also raised concerns about future demand for commodities and prompted some selling.
S&P cut its rating outlook for Italy to negative from stable, citing weak growth prospects and increased risks from a mountain of debt.
The cut came on the heels of a downgrade of Greece's credit rating by Fitch Ratings on Friday.
Greek Prime Minister George Papandreou discussed new emergency measures with his cabinet on Monday to cut the deficit. He is keen to convince lenders the government can deal with a debt crisis without restructuring.
Adding to the worries, Spain's Socialists reeled from losses in local elections. Investors are concerned that voter rebellions against austerity plans could cause bailouts and budget agreements to unravel, leaving large amounts of debt at risk of default.
(Reporting by Angela Moon; Editing by Jan Paschal)