The latest setback in Greece's financial crisis sent major stock market indexes to lows for the year Monday and put the Standard and Poor's 500 index on the verge of a bear market. The euro fell to a 9-month low against the dollar, and the yield on the 10-year Treasury note sank as investors piled money into lower-risk investments.
The slump came on the first day of trading for the fourth quarter and followed the weakest quarter the market has had since the financial crisis. Stocks opened lower, turned briefly higher in late morning trading, then slid throughout the afternoon. The Dow Jones industrial average lost 258 points.
European markets slumped after Greece said it won't be able to reduce its budget deficits as much as it had agreed to as part of a deal to receive more emergency loans. Markets have responded nervously to headlines out of Europe for weeks, fearful that if Greece defaulted on its debt there might be another lockup in the global financial system, similar to the one triggered by the collapse of Lehman Brothers in September 2008.
"The market is continuing to trade based on what is happening in Europe, and that is going to overshadow everything else," said Quincy Krosby, market strategist at Prudential Financial. "The math (for the Greek bailout) didn't add up a year ago, and the math doesn't add up today," Krosby said. "The market knows that and is waiting for the Europeans to acknowledge it."
The S&P 500 lost 32.19, or 2.9 percent, to 1,099.23. The Dow Jones industrial average fell 258.08 points, or 2.4 percent, to 10,655.30.
Indexes of smaller companies fell even more than the Dow and S&P, which are dominated by large companies. The Nasdaq composite slid 79.57, or 3.3 percent, to 2,335.83. The Russell 2000 index of small companies plunged 5.4 percent to 609.49.
All four indexes hit their lowest level for the year.
Banks, energy, and consumer discretionary stocks fell the most. The yield on the 10-year Treasury note fell to 1.78 percent from 1.91 percent late Friday as investors piled into lower-risk investments. The yield hit a record low of 1.71 percent on Sept. 22.
The S&P index has fallen 19.4 percent since its high for the year on April 29. A 20 percent drop would signify the start of a bear market, ending a bull market that began in March 2009.
The Russell 2000 has been in a bear market since Sept. 20, and is down 30 percent from its April 29 high. The Nasdaq is down 19 percent; the Dow 17 percent.
The renewed concerns about Europe's debt problems pushed the euro down to $1.32 versus the dollar, a 9-month low. The stronger dollar could hurt large U.S. companies that rely on exports by making their products more expensive overseas. Coca-Cola Co. fell 3.2 percent to $65.42. Caterpillar Inc., which sells construction equipment globally, lost 4.5 percent to $70.55. Boeing, another large exporter, dropped 3.7 percent to $58.25.
"Everything that is coming out of Greece suggests that the dollar is only going to strengthen, which doesn't bode well for the international firms," said J.J. Kinahan, chief options strategist at T.D. Ameritrade. "It's tough to be bullish on anything at the moment."
The Dow briefly turned higher after 10 a.m., when the Institute of Supply Management said its gauge of U.S. manufacturing did better in September than Wall Street had predicted. The Dow and S&P turned mixed within 20 minutes, then took a sharp slide shortly after noon.
Concerns that the U.S. economy is headed for another recession helped send the S&P 500 index down 14 percent in the third quarter, which ended Friday. It was the worst quarter for the stock market since the fourth quarter of 2008, at the height of the financial crisis.
In corporate news, AMR Corp., the parent company of American Airlines, plummeted 33 percent to $1.98 as concerns flared up again that the company could be headed for bankruptcy protection. The stock hadn't closed below $2 since 2003. American is considered the U.S. airline most vulnerable to an economic downturn.
Bank of America Corp. plunged 9.6 percent to $5.53, the lowest price for the stock since the financial crisis in 2008. The company has fallen 59 percent since January as investors fret that the nation's largest bank will be hit with more settlements of lawsuits over mortgage securities that lost value after the housing bust.
Yahoo Inc. gained 2.7 percent, to $13.53, after the head of Chinese Internet company Alibaba Group Holdings said he would be interested in buying the company. Yahoo, which recently ousted Carol Bartz as its CEO, has been trying to decide whether to sell parts of the company.
Nine stocks fell for every one that rose on the New York Stock Exchange. Volume was heavy at 5.8 billion shares.