U.S. stocks closed at their lowest levels in a month on Monday in a sign of increasing doubt that equity markets can weather recent weakness in global manufacturing and demand.

Industrial, energy and technology stocks, closely related to growth, were among the day's top decliners. Poor manufacturing figures from Germany and China were a surprise and gave investors reason to shed positions in those industries.

Mining machinery maker Caterpillar Inc , a Dow component, lost 2.3 percent to $101.89, while the S&P industrial sector index <.GSPI> fell 1.4 percent and the S&P info-technology sector index <.GSPT> declined 1.5 percent.

The drama surrounding the euro zone's debt crisis added to investor anxiety. It furthered a recent trend of selling commodities, the euro, and stocks in tandem.

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.

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 euro hit a two-month low against the U.S. currency.

The Dow Jones industrial average <.DJI> dropped 130.78 points, or 1.05 percent, to 12,381.26. The Standard & Poor's 500 <.SPX> lost 15.90 points, or 1.19 percent, to 1,317.37. The Nasdaq Composite <.IXIC> fell 44.42 points, or 1.58 percent, to 2,758.90.

In a sign of technical weakness, the S&P 500 closed below its 50-day moving average for the first time since April 19. It is also at its lowest level since that day.

Global stocks as measured by MSCI <.MIWD00000PUS> dropped 1.8 percent, the biggest daily decline in more than two months.

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.

Shares of Coca-Cola Co fell 1.2 percent to $67.49 and equipment manufacturer Joy Global Inc dropped 3.1 percent to $87.54.

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. July crude oil futures lost 2.4 percent to settle at $97.70 a barrel.

An S&P index of top U.S. retailers' stocks <.RLX> performed better than the overall market, falling 0.46 percent.

About 6.44 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, far below last year's estimated daily average of 8.47 billion and under the 7.63 billion traded daily on average so far this year.

Decliners beat advancers on the NYSE by a ratio of almost 4 to 1, while on the Nasdaq, more than four stocks fell for every one that rose.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)