Stocks traded off session lows Monday after President Obama promised he will meet daily with Congressional leaders until the debt debate gets resolved. However, fears over a contagion threat in the euro zone kept markets under pressure.
The Dow Jones Industrial Average tumbled more than 1 percent, led by JPMorgan and Alcoa , after ending lower on Friday, but closing higher for the second week.
The S&P 500 and the tech-heavy Nasdaq were also sharply lower. Approximately 97 percent of S&P 500 stocks are trading to the downside today. But despite the sharp decline, all major averages are still trading higher for the month of July. The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped above 17.
All key S&P sectors were lower, led by energy and financials.
Stocks pared some losses after President Obama said in a news conference he will meet with Congressional leaders "every single day" until the debt debate gets resolved. (CNBC.com is streaming this event live.)
This comes after a highly-anticipated meeting over the weekend broke little ground as Obama and the Democrats repeated the need for a "balanced" approach, while Republicans restated their position that tax increases would further burden the already shaky economy.
In Europe, fears intensified over the threat of contagion in the euro zone debt crisis which could force more highly indebted countries to require financial aid. European top officials meet in Brussels to discuss Italy as well as the broader euro zone crisis ahead of a meeting of euro zone finance ministers.
Italy is the euro zone’s third-biggest economy and leaders are desperate to avoid market contagion from Greece.
Italian banks continued to skid, extending last week's losses. European banks trading in the U.S. were also trading lower, including Barclays , ING and Deutsche Bank .
Oil prices tumbledamid worries over the widening euro zone debt crisis and after a drop in Chinese crude imports rekindled fears about a demand slowdown. U.S. light, sweet crude slipped near $95 a barrel, while London Brent crude fell below $117.
Energy stocks were also lower across the board, including Chevron and ConocoPhillips .
There are no macroeconomic data due on Monday, but second-quarter earnings unofficially kicks off with Alcoa due to report after the closing bell. The aluminum maker tumbled almost 4 percent. (Read More: Alcoa May Beat, But Don't Expect a Pop—Analyst)