Stocks Finish Stellar October With Sharp Decline

NEW YORK (TheStreet) -- Stocks saw heavy selling Monday but still managed to log one of the strongest overall monthly gains in recent years.

Stocks sunk to session lows in the last hour of trading on Monday, the final trading day of October. The Dow Jones Industrial Average delivered the third best monthly percentage gain in its history despite losing 276 points, or 2.3%, on Monday to close at 11,955. For the month, the index gained 9.5%.

The S&P 500 saw its best month in roughly 20 years, gaining 11%, even though it gave back 32 points, or 2.5%, to finish Monday at 1253, and the Nasdaq fell 53 points, or 1.9%, to settle Monday at 2684. The Nasdaq also gained 11% in October.

Stocks were stuck in negative territory all day but accelerated losses late in the session. The weakness may have stemmed from Greek Prime Minister George Papandreou's call for a referendum on the recent plan to contain Greece's sovereign debt crisis.

All 30 components on the Dow index finished in the red. Bank of America (BAC), which shed 7.1%, led the losses, while Cisco Systems (CSCO), McDonald's (MCD) and Kraft Foods (KFT) saw the mildest losses.

"We've had a tremendous run the last couple of weeks so investors are getting a little vertigo and taking money off the table," said Paul Nolte, managing director at investment firm Dearborn Partners.

Of the 2.6 billion shares that traded on the New York Stock Exchange, only 18% rose while 80% declined. On the Nasdaq, some 1.8 billion shares changed hands.

News that trading firm MF Global (MF) has filed for Chapter 11 Bankruptcy protection cast a pall over the banking sector. JP Morgan Chase (JPM) and Deutsche Bank (DB) fell 5.3% and 11.5%, respectively. The Financial Select Sector SPDR ETF (XLF) was down 4%.

MF Global filed for bankruptcy on Monday after making risky bets on European sovereign bonds. While the firm may not be big enough to trigger a systemic risk to the rest of the financial system, it is the biggest U.S. casualty so far from the eurozone debt crisis.

While a plan from eurozone leaders last week to address the region's debt crisis was met with relief from investors, skeptics believe Europe is far from resolving its debt crisis and is still vulnerable to economic malaise has led to some nervousness over whether stocks can extend their strong run. Economists say that Europe is headed for a prolonged period of slow growth.

"Pretty broad gains augur well for more rallying but continuation hinges on additional clarity on how Europe plans to handle Greece and Italy," added Nolte.

On Friday, stocks closed mixed, suggesting the market was taking a breather after rallying on Europe's debt pact. As of Friday's close, the Dow was up 12% for October.

Stocks followed European markets lower on Monday. London's FTSE lost almost 2%, and Germany's DAX plunged 2.5%. The euro fell 1.4% against the greenback.

In overnight trading, the Japanese government sold the yen to curb the rising value of the currency in an attempt keep the country's exports competitive. The dollar hit a three-month high against the yen after posting a record low of 75.31 yen since World War II before Japan's move. The dollar index, a measure of the dollar's value against a basket of currencies, rose 1.9%.

Japan's Nikkei Average finished 0.7% lower, and Hong Kong's Hang Seng lost 0.8%.

The rising dollar pressured commodities like gold, which lost $22, or 1.3% to settle at $1,725.20 an ounce. In other commodities, the December crude oil contract gave up 13 cents, or 0.1%, to settle at $93.19 a barrel. The benchmark 10-year Treasury was last gaining 1 1/32, diluting the yield to 2.196%.

Markets await key announcements on monetary policy from the Federal Reserve and the European Central Bank as well as the U.S. government's October jobs report later in the week.

Ahead of a read on U.S. manufacturing activity Tuesday, a report showed activity in the Midwest region deteriorating slightly in October. The Chicago purchasing managers index dropped to 58.4, about in line with economists' expectations after the index came in at 60.4 in September.

Health insurer Humana (HUM) jumped 5.7% to $84.89 after topping profit estimates by 51 cents a share for the third quarter.

-- Written by Chao Deng and Melinda Peer in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.