NEW YORK (TheStreet) -- Stocks were hammered Monday as investors fled riskier assets on concerns about Europe's ability to address its escalating debt problems.
The latest batch of worrisome headlines from across the pond included Cyprus reportedly asking for a bailout, the resignation of Greece's finance minister and Spain making its own formal request for funding to solidify its banking system.
Europe's leaders are slated to meet later this week to formulate a plan to stabilize the region but growing pessimism about their ability to reach a workable compromise was the fueled for the sell-off, which saw safe havens like gold, bonds and the dollar find buyers.
Dow Jones Industrial Average
shed 138 points, or 1.1%, to close at 12,502. The blue-chip index lost 1% last week in its first weekly decline of the month.
fell 21 points, or 1.6%, to finish at 1314.
was hit the hardest, plunging 56 points, or nearly 2%, to close at 2836.
Within the Dow, 29 of the index's 30 components posted losses with only
Bank of America
were the heaviest percentage decliners among the blue chips, declining more than 3% each.
is reportedly taking steps to improve risk management of its Chief Investment Office, the unit that racked up more than $2 billion of trading losses, while avoiding big bets on derivative and private-equity investments,
The Wall Street Journal
said, citing people close to the bank.
But the CIO intends to stick with a strategy permitting a wide variety of other, potentially risky investments, the people told the newspaper. The stock fell by about 2%.
The weakest sectors in the broad market were financials, energy and technology.
Losers outpaced gainers by a ratio of roughly 3 -to-1 on the New York Stock Exchange and on the Nasdaq.
The VIX, which measures market volatility through options activity in the S&P 500, jumped more than 10% to 20.28. A move above 20 is viewed as indicative of rising market fear.
The Commerce Department reported Monday the U.S. new-home sales rose more than expected in May to a seasonally adjusted annual rate of 369,000 -- the best levels going back to April 2010.
This was also 7.6% above the April rate of 343,000.
Economists surveyed by
had expected a rise to a seasonally adjusted annual rate of 346,000.
Wall Street though was more concerned with the eurozone summit set to take place in Brussels on Thursday and Friday with the sell-off illustrating how little confidence there is that the meeting will yield a concrete plan to address the region's mounting problems.
European leaders have their work cut out for them," said Ryan Detrick, senior technical strategist at Schaeffer's. "Germany is getting fed up with Greece wanting a bailout, but not wanting to make big sacrifices. At the same time, Spain has accepted the bailout, but the major concern is could Italy be next? They need to do whatever they can to instill some confidence in their plans at this summit, or things could get ugly later this week."
The realization, said Detrick, that the same European issues have not gone away is what's hurting the markets Monday.
"The only question is will
German Chancellor Angela Merkel blink?," said Michael Gayed, chief investment strategist at Pension Partners.
"Will she ease on the rigidity towards handling the Eurozone crisis, or stay the course, which markets appear to not want her to do," asked Gayed. "Other than that,
the summit most likely is a non-event," said Gayed.
Gayed attributes some of Monday's selloff to a "withdrawal" from the drug of aggressive Fed stimulus.
The FTSE in London dropped1.14% and the DAX in Germany declined by 2.09%. Spain confirmed Monday that it has officially requested European financial support of up to €100 billion ($125 billion) for its troubled banks. It said that the final amount will be set at a later date and should more than sufficiently cover all the banks' needs.
"Spain finally officially asked for help for their banks and although this isn't a shocker, it is another harsh reminder that the reality is things might get worse before they get better," said Detrick.
Dan Greenhaus, chief global strategist at BTIG, attributed Monday's selloff to growing frustration over the response of European policy makers to the debt crisis as they continue to remain divided over what caused the current crisis and what the appropriate responses should be.
"If you believe things are worsening globally, then the response has been quite ineffective at stemming the decline," said Greenhaus.
Adam Sarhan, chief executive of Sarhan Capital, said that not only are both the eurozone periphery nations and European banks in general suffering from a liquidity crunch, they're not really solvent by any normal measure.
"The sad reality of the situation in Europe is that no one in the world has a clear and viable solution to the European debt crisis," said Sarhan.
Earlier in Asia, the Hong Kong Hang Seng index settled down by 0.51% and the Nikkei in Japan finished lower by 0.72%.
August crude oil futures settled lower by 55 cents at $79.21 a barrel. August gold futures rose $21.50 to settle at $1,588.40 an ounce.
The benchmark 10-year Treasury was gaining 20/32, lowering the yield to 1.609%, while the dollar was rising by 0.32%, according to the
"Expectations that further risk sharing will be agreed at this week's summit have dimmed to next to nothing," cautioned Michala Marcussen, an economist at Societe Generale. "Failure to deliver further risk sharing at the Summit will leave markets vulnerable."
In corporate news,
Research In Motion
, the BlackBerry maker, could split its business in two by separating its handset manufacturing unit from its messaging network, according to
The Sunday Times
, which didn't cite sources.
RIM may break off the handset division into a separate listed company or try to sell it, the British newspaper said.
were listed as potential buyers,
The Sunday Times
said. Shares sank about 7.5%.
, the world's biggest brewer, is in talks to buy the 50% of Corona beer maker
that it doesn't already own,
reported, citing a person familiar with the matter.
The deal could be valued at more than $10 billion. Anheuser-Busch InBev shares ticked up by less than 1%.
2012 Stock Predictions and Outlook
-- Written by Andrea Tse and Shanthi Bharatwaj in New York.
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