Stocks fell sharply on Monday as the Obama administration raised the specter of bankruptcy for U.S. automakers General Motors and Chrysler and Spain had to rescue regional savings bank CCM.
The administration grabbed control of the failing U.S. auto industry on Monday, forcing out GM's CEO, pushing Chrysler LLC toward a merger with Fiat of Italy and threatening bankruptcy for both.
GM shares tumbled 24 percent while Ford shed more than 6 percent to $2.34.
It raises this issue of kind of taking and running companies and nationalizing them, said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
They're basically taking over the role that traditionally goes to the board of directors.
The Dow Jones industrial average dropped 234.01 points, or 3.01 percent, to 7,542.17. The Standard & Poor's 500 Index fell 24.00 points, or 2.94 percent, to 791.94. The Nasdaq Composite Index slid 47.19 points, or 3.05 percent, to 1,498.01.
European markets fell after Spain was forced into its first bank rescue since the financial crisis began and Germany and Britain also acted to shore up lenders as the sector awaited the brunt of the impact of rising bad loans.
Adding to the bank worry were comments from U.S. Treasury Secretary Timothy Geithner on Sunday that some banks still need much aid and the government will have about $135 billion left after other banks give back some of the bailout money.
Banks shares fell as Citigroup tumbled more than 10 percent to $2.35 and Bank of America dropped 12.7 percent to $6.41. The KBW Bank index shed 5.6 percent.
GM CEO Rick Wagoner, who presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steven Rattner. A majority of GM's board will also be replaced.
Bankruptcy rumblings also sent shares of auto-part suppliers lower, including American Axle & Manufacturing , which slumped 21 percent to $1.39.
On the merger front, U.S. fertilizer producer CF Industries Holdings Incsaid its board of directors rejected Canadian fertilizer company Agrium Inc's revised takeover offer of about $3.8 billion.
CF Industries fell 3.2 percent to $70.96 while Agrium fell 6.3 percent to $35.94.
Despite Monday's decline, the recent rally has taken the broad S&P 500 index up 17.3 percent since it hit a 12-year low on March 9, although it is off more than 12 percent for the year so far.