Worst One-Day Drop in 2013: Stocks Skid 2%, Dow Tumbles 250; Vix Spikes 40%

Stocks finished at session lows Monday, posting their sharpest one-day drop this year, as disappointing economic data from China triggered a selloff in commodities.

(Read More: After-Hours Buzz: RHT, HCA, NTGR & More)

Meanwhile, major averages added to their losses following two explosions at the Boston Marathon finish line around 3pm ET, injuring several spectators and runners. The explosions happened about three hours after the winners crossed the line.

New York City Police told CNBC that they have stepped up security at hotels and other prominent locations around the city.

The Dow Jones Industrial Average tumbled 265.86 points, or 1.79 percent, to finish at 14,599.20. All 30 Dow components ended in the red, led by Caterpillar and ExxonMobil.

The S&P 500 plunged 36.49 points, or 2.30 percent, to close at 1,552.36. And the Nasdaq dropped 78.46 points, or 2.38 percent, to finish at 3,216.49.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, surged more than 40 percent to finish above 17.

Major averages snapped a four-day winning streak last Friday, but still closed up more than 2 percent for the week.

All key S&P sectors closed sharply in negative territory, dragged by materials and energy.

China's gross domestic product grew 7.7 percent in the first quarter, over the same period a year-ago, below the expected 8 percent level and down from 7.9 percent in the previous quarter. Data on Chinese industrial production for March also missed forecasts. China is the world's second-largest buyer of gold.

(Read More: Has China's Economy Hit a 'Dead End'?)

"These growth and activity numbers seem quite disappointing in light of the very rapid loan growth reported last year ... it has proved a sluggish start to the year and this suggests that the Chinese economy is less dynamic and reaching speed limits," said Greg Gibbs, senior foreign exchange strategist at RBS.

Gold prices plunged more than 9 percent to settle at its lowest since February 2011. Shares of Iamgold, Kinross and Barrick were down more than 10 percent each. Freeport-McMoran and Cliffs Natural Resources were among the top S&P 500 laggards.

(Read More: Cramer: This 'Tipping Point' Great for Stocks)

On the economic front, the pace of growth in manufacturing in New York state slowed more than expected to 3.05 in April from 9.24 in March, according to the New York Fed's "Empire State" index. Economists had expected a reading of 7.

And homebuilder sentiment slipped for the third consecutive month in April, declining to 42 from 44 in March, according to the NAHB/Wells Fargo Housing Market index. Economists had expected a reading of 45. A reading above 50 indicates that more builders view market conditions as favorable. Most homebulders were in the red, led by Meritage, Pulte and Toll Brothers.

"There will be a constant barrage of catalysts this week … and we may be setting the table for a correction that people are looking for," said Art Hogan, managing director at Lazard Capital Markets. "We've seen a two-week pattern of less-than-stellar economic data from the U.S., so we seem to be hitting a seasonal soft patch…we'll also be watching earnings and getting more information from a parade of Fed speakers."

Citigroup bucked the downward trend after the bank posted quarterly results that topped expectations thanks to improvements on loans and credit spreads.

The pace of earnings season begins to pick up this week with major companies including Goldman Sachs, Intel, Bank of America,Morgan Stanley, Microsoft, Google and GE scheduled to report results. (Track the Earnings Calendar Here)

(Read More: Tech Earnings: What to Expect from Yahoo and Intel)

On the M&A front, Sprint Nextel surged more than 13 percent to lead the S&P 500 gainers after Dish Network offered to acquire the telecom company for $25.5 billion in cash and stock. Meanwhile, Sprint's rivals AT&T and Verizon traded lower.

Also, Thermo Fisher Scientific is nearing a deal to buy genetic testing equipment maker Life Technologies for close to $13 billion, according to four people familiar with the matter, in what would be one of the year's biggest corporate takeovers. Shares of Life Technologies soared.

Google settled its two-year antitrust investigation by the European Commission by agreeing to legally binding changes to its search results.

And JPMorgan downgraded Saks from "overweight" to "neutral," citing downward pressure on luxury spending due to the higher income tax burden.

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

TUESDAY: Chicago Fed's Evans speaks, NY Fed's Dudley speaks, CPI, housing starts, industrial production, Fed Gov. Duke speaks, Minneapolis Fed's Kocherlakota speaks, Moody's annual mtg, US Bancorp shareholder mtg; Earnings from BlackRock, Coca-Cola, Goldman Sachs, Johnson & Johnson, Northern Trust, US Bancorp, Intel, CSX, Yahoo
WEDNESDAY: Mortgage applications, St. Louis Fed's Bullard speaks, oil inventories, Boston Fed's Rosengren speaks, Beige Book, Treasury Secretary Lew speaks, Carnival Corp. annual mtg, Gap investor mtg; Earnings from Abbott Labs, Bank of America, Bank of NY Mellon, American Express, Ebay, Noble, Sandisk
THURSDAY: Jobless claims, Minneapolis Fed's Kocherlakota speaks, Philadelphia Fed survey, Richmond Fed's Lacker speaks, leading indicators, natural gas inventories Fed Gov. Raskin speaks, Fed balance sheet/money supply, Ebay shareholders mtg, Texas Instruments annual mtg, G20 finance ministers mtg; Earnings from Morgan Stanley, PepsiCo, Philip Morris, United Health, Verizon, Nokia, Peabody Energy, Google, IBM, Microsoft, Capital One, Chipotle, E-Trade Financial
FRIDAY: Fed Gov. Stein speaks, IMF spring mtg; Earnings from GE, McDonald's, Schlumberger, Baker Huges, Honeywell

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