Stocks slumped as investors assessed how the devastating earthquake and tsunami in Japanwould affect U.S. companies and the global economy.
The Dow Jones Industrial Average fell more than 115 points, to below 12,000, after the blue-chip index ended lower last week.
Among Dow components, General Electric, Walt Disney and JPMorgan sank, while Pfizer and Caterpillar gained.
The S&P 500 fell below 1,300, while the tech-heavy Nasdaq declined more than 1 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, spiked more than 11 percent higher to above 22.
All key S&P 500 sectors declined, led by utilities, consumer discretionary and industrials.
Japan’s benchmark Nikkei closed down more than 6 percentMonday amid fears over the cost to the country’s economy, while the iShares MSCI Japan index exchange traded fund plunged 8 percent.
It's difficult for investors to be upbeat in the immediacy of the event, said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "I think that's more of what we are dealing with right here."
Paulsen said investors are also wrestling with the notion of how an economic hit to Japan, combined with slowing growth out of China, will affect the global economy. But Paulsen said, "I got to imagine there are investors that are looking at Japan eliminating in one trade day its entire advance since last fall, and buying." And if they haven't, he added, that may happen later in the week.
Oil prices initially sank on expectations economic growth will slow after the earthquake, but they pared losses amid news that Saudia Arabia had sent troopsinto Bahrain to quell protests.
London Brent crude rose to near $114 a barrel, while U.S. light sweet crude traded above $100 a barrel.
The Bank of Japan, under pressure to calm the markets, said it has supplied an additional 41 billion yen Monday to financial institutions operating in areas hit by the earthquake and Tsunami.
Japan's strongest earthquake on record shut refineries and industrial plants in the world's third-largest oil consumer. U.S. refiners, meanwhile, gained, including Tesoro , Western Refining and Frontier Oil .
Solar stocks also gained, in part because of renewed concerns over the use of nuclear power, which had been regaining popularity as a no-carbon fuel alternative. LDK Solar , FirstSolar and JA Solar all gained.
Expectations that proposed or planned nuclear power plans may not go foward hurt utilities, however. Entergy , which currently generates nuclear power, sank more than 4 percent, after Bank of America Merrill Lynch downgraded the utility to "underperform" from "neutral," and cut its price target to $74 a share from $78, becuase of the uncertainty of nuclear power plant approvals that are "critical to long-term earnings." Entergy will see to relicense several units in Vermont and New York over the next few years.
The brokerage also downgraded Scana to "underperform" from "neutral," saying it has a "meaningful amount of its earnings growth tied to nuclear" through the utility's 55 percent share of two new units that were to contribute "almost all its earnings growth over the next five years."
The Southern Company may also experience delays in developing nuclear power as a result of the nuclear disater in Japan, according to Citigroup.
Shares of Toyota , which said it would suspend production at all its car plants until at least March 16, dropped 8 percent. (Read more: Prius Production Delays Could Curb Toyota Rebound.)Rivals Honda and Nissan also fell.
Other Japanese stocks hit hard by the uncertainty caused by the quake were Panasonic , Sony and Toshiba .
General Electric , which has nuclear ventures with Hitachi Ltd of Japan, declined more than 2 percent. Insurers and some large energy providers were hit in Europe. The Stoxx 600 European Insurance Share Index fell about 1.5 percent. The reinsurers fared the worst, falling as much as 3.8 percent. Construction and refinery shares rose in emerging markets as investors expected a boost from large-scale reconstruction efforts.
Pfizer's shares soared after reports the drug company may shed assets, according to Sanford C. Bernstein.
Family Dollar shares soared after CNBC reported that Nelson Peltz of Trian Fund Management reiterated its offer for the company, and said in an SEC filing that it was upset with the board of the discount retailer for adopting a "poison pill" defense against a takeover.
Financials led the market lower in part over investor fears Japan's quake will affect earnings of banks with global operations, said Dave Rovelli, Canaccord Genuity managing director of equity trading.
Luxury goods makers heavily dependent on sales in Japan declined on Monday, including Coach and Tiffany , which both sank more than 5 percent.
In M&A news, Berkshire Hathaway agreed to buy Lubrizol for $135 a share, for about $9 billion in cash, the companies said. (Read more: Buffet Hits Mark With Latest Acquisition).
In economic news, the Federal Reserve's policy setting committee will hold a one-day meeting Tuesday. While the Fed is not expected to raise rates, the meeting will refocus traders on the Fed's bond buying program, set to end in June.
Producer prices and consumer inflation data are expected Wednesday and Thursday.
Trading was moderately lower in Europe. The pan-European FTSEurofirst 300 was down about 0.6 percent
On Tap Next Week:
MONDAY: Microsoft releases new version of Internet Explorer, Chevron analyst meeting, and HP "summit."
TUESDAY: Credit card default rates, Empire state manufacturing survey, import & export prices, housing market index, and FOMC meeting announcement.
WEDNESDAY: Mortgage applications, housing starts, producer price index, current account, and oil inventories.
THURSDAY: Consumer price index, jobless claims, industrial production, leading indicators, Philadelphia Fed survey, natural gas inventories, money supply; before-the-bell earnings from FedEx and Lululemon; after-the-bell earnings from Nike.
FRIDAY: Quadruple witching; before-the-bell earnings from Allianz.
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