NEW YORK ( TheStreet) -- Major U.S. stock averages each fell more than 1% Monday and the VIX fear gauged spiked as investors feared that the latest updates from Italy's elections were portending the risk that the country could backpedal from its austerity programs.

The latest projections out of Italy indicated that the center-right coalition led by former Italian Prime Minister Silvio Berlusconi was coming out ahead in the senate races. Earlier, Sky News published a headline saying that an exit poll of Italian voters indicated a return of a Pier Luigi Bersani-Mario Monti coalition, which would probably have been the most market-friendly outcome, said Andrew Wilkinson, chief economic strategist at Miller Tabak.

"Needless to say, confirmation that Italy is set for a period of political deadlock could prompt a further sell-off and perhaps a renewed period of instability for the eurozone," Capital Economics cautioned in a note.

The Dow Jones Industrial Average gave up 216.40 points, or 1.55%, to close at 13,784.

Breadth was very negative, with losers outnumbering winners 27 to three. The biggest laggards included JPMorgan ( JPM), United Technologies ( UTX), Travelers ( TRV) and UnitedHealth ( UNH).

Advancers included McDonald's ( MCD), Verizon ( VZ) and Wal-Mart ( WMT).

The S&P 500 fell 27.75 points, or 1.83%, to settle at 1,487. The Nasdaq closed lower by 45.57 points, or 1.44%, at 3,116.

All sectors in the broader market fell, led lower by conglomerates, capital goods, financials, energy and consumer cyclicals.

Volumes swelled to more than 3.89 billion shares on the New York Stock Exchange and nearly 2 billion shares on the Nasdaq. Decliners overshadowed advancers by a ratio of 3.5-to-1 on the Big Board and 4.4-to-1 on the Nasdaq.

The VIX, which measures market volatility through options activity in the S&P 500, jumped more than 34% to 18.99.

Investors were also watching U.S. budget talks closely. Congress reconvenes in Washington this week, and a deal to avert a raft of automatic spending cuts set to kick in March 1 is looking increasingly unlikely.

Drew Matus, senior U.S. economist at UBS ( UBS), said that the across-the-board federal sequestration budget cuts are likely to pose less of an economic threat than suggested by some politicians and media accounts.

Matus said that actual spending cuts in fiscal 2013 will be around only half the slated $85 billion reduction in the budget authority.

"Moreover, some of the more dramatic associated job cut forecasts apparently ignore expected furloughs that should 'spread the pain' via a lower workweek versus outright government job cuts," Matus said. "Also, the defense industry has already has been bracing for lower defense spending. Meanwhile, there may be an only muted response by an American public becoming accustomed to budgetary 'false alarms' from Washington."

House Speaker John Boehner was expected to talk about sequestration at a press conference after the closing bell Monday.

The U.S. economic calendar was light Monday, with the highlight being the Dallas Federal Reserve's general business activity index for February. Perceptions of broader economic conditions improved a bit in the month, with the index coming in positive for the third month in a row, though it dipped to 2.2 from 5.5.

Gold for April delivery surged $13.80 at $1,586.60 an ounce at the Comex division of the New York Mercantile Exchange, while April crude oil futures fell 2 cents at $93.11 a barrel.

The benchmark 10-year Treasury was up 29/32, lowering the yield to 1.867%. The dollar was up 0.35%, according to the U.S. dollar index.

The FTSE in London closed up 0.31% and the DAX in Frankfurt increased 1.45%. The Hang Seng index in Hong Kong closed up 0.17% and the Nikkei Average in Japan finished ahead by 2.43%.

Asian markets traded higher Monday amid talk that Haruhiko Kuroda, president of the Asian Development Bank, is tipped to become the Bank of Japan's next governor and would likely push for aggressive monetary easing.

The Japanese yen plunged to close to a three-year low upon the news.

"Mr. Kuroda has been a very vocal advocate of a much weaker yen, stating for the record only a short while ago that 120 yen/dollar was too expensive and that a much weaker yen would serve the Japanese economy well," said Dennis Gartman, commodities trader and editor of The Gartman Letter, in his daily report.

Gartman said in his note that "in reality Mr. Kuroda is a fine choice. He has all of the 'requirements' of a BOJ chairman. He's done his time within the various ministries of government; he's had international experience; he has served at the bank itself and he's old enough to pass muster in Japan, which still has a great deal of respect for elder statesmen in positions of authority such as this."

Barnes & Noble ( BKS) Chairman Leonard Riggio notified the company's board that he plans to propose to buy all assets of the retail business of Barnes & Noble, according to a Securities and Exchange Commission filing. Shares surged 11.5%.

Home-improvement retailer Lowe's ( LOW) posted fourth-quarter earnings of 26 cents a share on revenue of $11 billion, beating the average analyst earnings estimate of 23 cents a share on revenue of $10.84 billion amid demand created by recovery efforts in the wake of superstorm Sandy. However, the company predicted full-year earnings of $2.05 a share, missing the consensus expectation of $2.10 a share. Shares tumbled nearly 5%.

Hertz Global ( HTZ) forecast full-year earnings of $1.82 to $1.92 a share on revenue of $10.85 billion to $10.95 billion, above the average analyst estimate of earnings of $1.78 a share on revenue of $10.79 billion. Shares rose more than 1.5%.

The company posted fourth-quarter 33 cents a share on revenue of $2.3 billion, beating earnings estimates of 31 cents a share on revenue of $2.24 billion amid improving pricing during the quarter.

Cooper Tire & Rubber ( CTB) posted fourth-quarter earnings of $1.15 a share on revenue of $1.1 billion, beating the average analyst estimate of 85 cents a share on revenue of $1.03 billion amid successful product launches. The company said it has been diversifying its channel and product mix for light-vehicle tires and expanding volumes in the truck-bus radial tire segment. Shares were up 2.5%.

Dynavax Technologies ( DVAX) shares plunged more than 32% after the U.S. Food and Drug Administration rejected the company's hepatitis B vaccine Heplisav , citing the need for additional safety data in healthy adults.

Zynga ( ZNGA) shares surged by more than 7.5%, extending the prior session's gains, when shares jumped thanks to Nevada's decision to legalize online gambling.

ITT Educational Services ( ESI) shares plunged more than 16.5% after it said Friday evening that the SEC is investigating the company on certain private student-loan agreements.

-- Written by Andrea Tse in New York

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