Europe's debt problems rumbled through global financial markets again Tuesday.
U.S. stocks fell sharply in early trading when it appeared that European markets were heading for a second straight day of deep losses. The Dow Jones industrial average lost as many as 307 points by 10:45 a.m. Late-day recoveries in both the U.S. and Europe left indexes with relatively modest losses. The Dow ended down 101 points.
"It's becoming a pattern that the U.S. market breathes a sign of relief once trading in Europe is finished," said Quincy Krosby, market strategist at Prudential Financial.
Europe's debt problems, which have simmered for more than a year, are deepening. Bailouts for Ireland and Greece have not quelled fears that either country will default on its loans, an event that could lead to the collapse of the euro.
The concerns about Europe and the US economy bolstered the prices of assets that traders see as more likely to hold their value during a weak economy. The yield on the 10-year Treasury note fell to 1.97 percent, one of the lowest rates since the Federal Reserve Bank of St. Louis began keeping daily records in 1962.
Low interest rates mean that large companies are able to borrow money at some of the lowest rates on record. Consumers, too, as have benefited from lower rates on mortgages, private student loans and other kinds of debt. However retirees, savers and others who rely on some kinds of interest income are now earning less.
The Stoxx 600 Europe index lost 4.1 percent Monday, while U.S. markets were closed for Labor Day, as traders worried that Europe's debt problems could slow economic growth around the world. Italy was hit by a general strike Tuesday ahead of votes this week on a budget-cutting package needed to shore up that country's finances.
Peter Boockvar, equity strategist at Miller Tabak & Co., said investors are becoming more fearful that the Greek government may not pay bond investors back. "Officials are coming to the realization that there's no way Greece can pay its money back and maybe we're better off just letting it default," he said.
September is historically the worst month for the stock market. The Dow has dropped an average of 0.9 percent each September since 1950, according to the Stock Trader's Almanac.
Traders expect the trend to hold true this year as uncertainty continues over Europe's debt crisis and the stagnating U.S. economy. The U.S. government reported Friday that there was no job growth last month. It was the worst reading on jobs since September 2010.
The Dow fell 100.96 points, or 0.9 percent, to 11,139.30. It's down 4 percent so far this month, its worst start to September since 2002.
The Standard and Poor's 500 index dropped 8.73, or 0.7 percent, to 1,165.24. The Nasdaq composite fell 6.50, or 0.2 percent, to 2,473.83.
Pfizer Inc., Caterpillar Inc. and Johnson & Johnson were the only stocks among the 30 that make up the Dow to rise.
Signs of growth in the U.S. service sector helped tame concerns about another US recession. The Institute for Supply Management said the service sector grew more than analysts had expected in August. Growth in that part of the economy, which employs nearly 90 percent of America's work force, fell the three previous months.
Economists suggested that the expansion won't be enough to dent the unemployment rate. The government reported Friday that the economy added no new jobs in August. It was the worst reading on the jobs market since September 2010.
Bank stocks fell more than the overall market. Federal regulators filed lawsuits late Friday against 17 major banks, saying they sold Fannie Mae and Freddie Mac mortgage-backed securities that lost value when the housing market collapsed. Bank of America Corp. and JPMorgan Chase & CO. each lost nearly 4.
Three stocks fell for every one that rose on the New York Stock Exchange. Volume was above average at 4.4 billion shares.
AP Business Writer Bernard Condon contributed to this report.