Stocks fell on Monday, joining a global equities sell-off, as a slowdown in manufacturing growth and a stronger U.S. dollar clouded the outlook for earnings.
The euro hit a two-month low against the U.S. currency, with more losses expected on fears that the euro zone's sovereign debt crisis is spreading. Economic data further hurt the single currency as German and euro-zone purchasing managers' indexes for May came in below expectations.
A reading on China's manufacturing showed factories expanded in May at their slowest pace in 10 months.
Industrial, energy and technology stocks, closely related to growth, were among the day's top decliners. The S&P industrial sector index <.GSPI> fell 1.2 percent and the S&P info-technology sector index <.GSPT> declined 1.4 percent.
The main driver of the market's decline is a combination of global economic cooling and an increase in risk from Europe, according to Paul Zemsky, head of asset allocation at ING in New York.
We're definitely seeing a slowdown in the manufacturing sector and that is making people nervous about global growth, he said. Throw in the Greek downgrade on Friday, warnings about other countries being downgraded ... it's just a negative cocktail right now.
Negative ratings actions on Greece and Italy and regional election results in Spain raised concerns about the deepening of the euro zone's debt problems. Investors worry that voter rebellions against austerity plans could put some government debt at risk of default.
The Dow Jones industrial average <.DJI> lost 109.13 points, or 0.87 percent, to 12,402.91. The Standard & Poor's 500 Index <.SPX> fell 13.90 points, or 1.04 percent, to 1,319.37. The Nasdaq Composite Index <.IXIC> dropped 36.58 points, or 1.31 percent, to 2,766.74.
Global stocks as measured by the MSCI <.MIWD00000PUS> dropped 1.7 percent.
The stronger dollar hurt commodity prices and stocks in the energy and basic materials sectors. Large exporters, which have benefited from a weaker U.S. currency, were also hit hard.
Miner Freeport-McMoRan Copper & Gold Inc
A dollar rising is near-term negative for stocks while commodities (falling) can have both positive and negative aspects, ING's Zemsky said.
On one hand, (commodities) are showing growth is slower than what people originally thought, but at the same time, it's also a big tax cut to the consumer through lower gasoline prices.
Gasoline futures are down roughly 15 percent so far this month. On Monday, U.S. crude oil futures lost 2.6 percent to $97.55 a barrel.
An S&P index of top U.S. retailers' stocks <.RLX> edged down 0.1 percent.
(Reporting by Rodrigo Campos; Editing by Jan Paschal)