US Stocks

U.S. stocks suffered steep losses as investors' concerns over the financial health of European governments triggered a flight to safer assets. The Dow Jones Industrial Average dropped 130.78 points, or 1.05%, to 12381.26, with all but one component, McDonald's, in the red. Technology and energy stocks led the Standard & Poor's 500-stock index to a slump of 15.90 points, or 1.19%, to 1317.37. The technology-oriented Nasdaq Composite lost 44.42, or 1.58%, to 2758.90. In the absence of major U.S. earnings reports or economic data, investors focused on negative headlines from Europe, including a Standard & Poor's outlook cut on Italian debt and regional-election losses for Spain's ruling Socialist party.

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Monday's selloff reflected the same investor risk aversion that drove a slump in crude-oil prices below $98 a barrel and a rally in the U.S. dollar versus major foreign currencies. Slower May manufacturer data from China also spurred traders to dump commodity-heavy shares in tandem with the decline in metals and other commodities Monday. Caterpillar led blue-chips lower as it dropped $2.44, or 2.3%, to $101.89, after the U.S. Department of Justice gave the company the go-ahead for its largest acquisition ever, a $7.6 billion takeover of Bucyrus International. Bucyrus gained 25 cents, or 0.3%, to 91.61. Apple shed 82 cents, or 0.3%, to 334.40, as Wall Street watched the impact of an explosion at a Foxconn plant in China that manufactures the iPad. Campbell Soup fell 29 cents, or 0.8%, to 34.95. The company reported fiscal third-quarter earnings and revenue that were above forecasts, but a weak soup business remained an area of concern.

European Markets

European markets ended sharply lower as renewed worries about the finances of some euro-zone governments triggered losses for banks and insurers, while travel related stocks gave ground after a volcanic eruption in Iceland. The Stoxx Europe 600 index fell 1.7% Monday to close at 274.78. Among national markets, Italy's FTSE MIB index sank 3.3% to 20532.64 after Standard & Poor's late Friday lowered its outlook on Italy's single A plus credit rating to negative from stable, citing risks in the government's debt-reduction plans. Among Europe's insurers, Old Mutual tumbled 3.8% in London, Aegon fell 3.3% in Amsterdam and Swiss Life Holding lost 3.3% in Zurich.

Concerns about Spain, another country whose debt burdens have spooked investors, escalated following heavy losses suffered by Spain's ruling Socialist party in regional and municipal elections on Sunday, while protests against the government's austerity programs hit the streets. The IBEX 35 index fell 1.4% to 10082.70, as heavyweight banking stocks BBVA tumbled 2.4% and Banco Santander declined 1.7%. Among other major national benchmarks, the U.K.'s FTSE 100 fell 1.9% to 5835.89, Germany's DAX slid 2.0% to 7121.52 and France's CAC-40 dropped 2.1% to 3906.98.

In Athens, the ASE Composite index fell 1.3% to 1280.10 after Fitch Ratings last week downgraded Greece's debt rating. Meanwhile, airlines across Europe were hit by news of a volcanic eruption in Iceland. Shares of Deutsche Lufthansa AG fell 3.5%, shares of Air France-KLM tumbled 4.5% and International Consolidated Airlines Group SA skidded 5.1%. Economic news did little to quell nerves. Slowing growth was evident in the Purchasing Managers Index for Germany, which slipped to 56.4 in May from 59.2 in April, its slowest pace of expansion in seven months. The flash estimate for overall euro-zone manufacturing PMI also disappointed, coming in at 55.4 from 57.8, well below expectations.

Asian Markets

Chinese stocks suffered their worst fall in more than four months Monday to lead Asian markets lower, weighed down by the combined effect of data showing weakening growth in local manufacturing, European debt worries and weak cues from Wall Street. China's Shanghai Composite lost 2.9% to 2,774.57 for its biggest one day percentage drop since a matching decline Jan. 20. South Korea's Kospi fell 2.6% to 2,055.71, Hong Kong's Hang Seng Index shed 2.1% to 22,711.02, Japan's Nikkei Stock Average fell 1.5% to 9,460.63, and Taiwan's Taiex gave up 1% to 8,747.51.

Losses on Chinese bourses came after HSBC's preliminary purchasing managers' index fell to a 10-month low of 51.1 in May, from April's final reading of 51.8. China Life Insurance dropped 3.4%, China Shenhua Energy gave up 3.1% and Air China shed 4.6%. In Hong Kong, Foxconn International Holdings finished the day 2.9% lower, following news of an explosion Friday night at a subsidiary's factory in Chengdu in China, where some Apple products are manufactured. Its parent company, Hon Hai Precision Industry, fell 2.9%, weighing on the Taipei market. South Korean auto makers dragged on the Seoul market, after Hyundai Motor Group on Sunday said labor strife at a core engine parts supplier Yoosung Enterprise was disrupting its automobile production. Hyundai Motor fell 5.4% and Kia Motors lost 4.7%.

Japanese machinery stocks dragged the Nikkei lower. Hitachi Construction Machinery tumbled 6% after Nomura cut its rating to reduce from neutral, while Komatsu dropped 5.9% after its target price was cut. Tokyo Electric Power slumped 9% after announcing a loss of more than $15 billion for the year ended March 31 on Friday.

Base Metals

Copper on the London Metal Exchange closed 3.1% lower Monday after weak data out of China and a stronger U.S. dollar sent base metal prices sharply lower. LME copper for three-month delivery ended the LME's afternoon open outcry session at $8,793 a metric ton, down $278 from Friday's close. The red metal tumbled in line with other base metals following a sharp decline in China's copper imports, the release of weaker than expected Chinese manufacturing data and a surge in the U.S. dollar. The metal posted a high of $9,055.50/ton before declining, and short-term indicators suggest copper will stall below $9,148/ton.

In other metals, three-month tin closed the session down 3.8% at $26,700/ton, while three-month nickel finished the day 4.9% lower at $22,395/ton. Three-month aluminum recorded a smaller decline, slipping only 0.9% to $2,478/ton. Crude futures ended lower Monday, as worries about China's economic growth and the debt situation in Europe put pressure on oil and other risky assets.

Light, sweet crude for July delivery settled $2.40, or 2.4%, lower at $97.70 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange ended $2.46 lower at $109.93 a barrel. Oil prices slid from highs above $100 a barrel after manufacturing data in China suggested that the country's ferocious economic growth may be slowing. A preliminary reading of the HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to a 10-month low of 51.1 in May from a final reading of 51.8 in April. That combined with renewed fears about the debt crisis in Europe, with the result that traders fled assets dependent on continued economic growth, including equities, oil and metals.

Gold futures rose as worries about economic growth in Europe and China sent traders seeking a safe place to park cash, but buying was limited by strength in the dollar. The most actively traded contract, for June delivery, settled up $6.50, or 0.4%, at $1,515.40 a troy ounce on the Comex division of the New York Mercantile Exchange. Thinly traded May delivery gold ended up $6.50, or 0.4%, at $1,515.30 an ounce.

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