US stocks tumbled on Monday, with the Dow turning negative for the year, as concerns about heavy debt loads both in the United States and Europe heightened worry about recession and increased volatility. Risky assets like commodities also fell, sparking a selloff in shares of industrials and energy companies. Wall Street's "fear gauge," the CBOE Volatility index VIX, jumped nearly 7 percent to 35.
A special US congressional committee was expected to concede failure to reach a deal after three months of talks over taxes and spending in an attempt to slash the deficit. The developments in Washington and Europe created greater headwinds for the market, extending the previous week's losses.
In addition, Moody's Investors Service said a recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for the country's credit rating. "There are more and more signals that we are heading into a global recession," said James Dailey, chief investment officer at TEAM Financial Managers in Harrisburg, Pennsylvania.
"This is not something the market was expecting, say a week ago." In late afternoon trade, the Dow Jones industrial average was down 294.11 points, or 2.49 percent, at 11,502.05. The Standard & Poor's 500 Index was down 26.96 points, or 2.22 percent, at 1,188.69. The Nasdaq Composite Index was down 58.13 points, or 2.26 percent, at 2,514.37.
Blue chips, which have been outperforming smaller cap stocks, fell the most. The Dow was off 0.7 percent for the year. The S&P and the Nasdaq were down more than 5 percent. The S&P quickly fell through the 1,200 level seen as the next level of support and was struggling to hold near 1,187, seen as its next line of support, representing the 61.8 percent retracement of the 2011 high to low slide.
Trading volume is expected to be light this week as markets will be closed for the US Thanksgiving holiday on Thursday. The light action could increase the likelihood of exaggerated swings in the market. Merger activity provided a bright spot as Pharmasset Inc surged 84.8 percent to $134.26 after Gilead Sciences Inc agreed to buy the company for $11 billion in cash. Gilead slumped 11.8 percent to $35.17.