U.S. stocks dropped more than 2 percent on Monday, as mounting concern about heavy debt loads both domestically and abroad increased uncertainty in an already troubled and volatile market.

A U.S. congressional committee was expected to concede they had failed to reach a deal after three months of talks over taxes and spending in an attempt to slash the deficit.

The developments in Washington and Europe created further headwinds for the and could extend the previous week's losses.

People are just wary to commit heavily to the market if you've got a particular day that no particular good news came out over the weekend anywhere -- there is virtually no good news and several data points were negative, said Rick Bensignor, chief market strategist at Merlin Securities in New York.

In addition, Moody's said a recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for the country's credit rating.

In Europe, the FTSEurofirst 300 <.FTEU3> index fell 3.1 percent. Along with the new concerns about France, Spanish prime minister-elect Mariano Rajoy was under pressure to detail his policies to overcome a severe economic crisis after his center-right party won the country's biggest election victory in 30 years.

Bensignor said the negative headlines from across the globe made it less likely the market would see a sustained rally despite stocks having what many see as attractive valuations.

Cheap valuations only do so much, they don't make bull markets, they make bidders to curtail down markets but in and of themselves the fact that stocks are cheap is not a good enough reason to think that they are going to go higher.

The Dow Jones industrial average <.DJI> dropped 301.34 points, or 2.55 percent, to 11,494.82. The Standard & Poor's 500 Index <.SPX> <.INX> lost 28.24 points, or 2.32 percent, to 1,187.41. The Nasdaq Composite Index <.IXIC> slid 62.65 points, or 2.44 percent, to 2,509.85.

The S&P quickly fell through the 1,200 level seen as the next technical level of support and was struggling to hold near 1,187, seen as its next line of support, representing the 61.8 percent retracement of the 2011 high to low slide.

Selling was broad-based, with each of the 10 major S&P sectors showing declines of more than 1 percent.

Trading volume is expected to be light this week as markets are closed for the U.S. Thanksgiving holiday on Thursday. The light action could add to volatility.

Merger activity provided a bright spot as Pharmasset Inc surged 84.8 percent to $134.30 after Gilead Sciences Inc agreed to buy the company for $11 billion in cash. Gilead slumped 11.8 percent to $35.18.

Also in merger news, Alleghany Corp dropped 7.2 percent to $291.64 on news it will buy Transatlantic Holdings Inc for about $3.4 billion. Transatlantic shares gained 1.4 percent to $55.20.

Economic data showed U.S. existing home sales unexpectedly rose in October as low interest rates for mortgages and rising rents encouraged more home buyers, a trade group said, but equities were little impacted by the data.

(Reporting by Chuck Mikolajczak; Editing by James Dalgleish)