Stocks closed sharply lower on concerns about the weak dollar, sluggish sales at Wal-Mart and higher oil prices.
It was the worst decline for the markets in over four months
The Dow Jones Industrial Average led the downward slide, declining more then 150 points, on a sharp drop in Wal-Mart shares, a Dow component.The Nasdaq also turned sharply lower on a decline in technology stocks. The S&P 500 also ended lower.
Investors will be looking at some key economic data on Tuesday, when the government will report on durable goods, housing and consumer confidence. Later in the week, there will be reports on the latest revision third-quarter economic growth and measures of manufacturing activity and personal spending and income.
Also Tuesday, Federal Reserve Board Chairman Ben Bernanke will speak on the economic outlook, which could provide investors with clues on what Fed policymakers may do at their Dec. 12 meeting.
Wal-Mart, the world's largest retailer, said on Saturday that same-store sales fell 0.1% in November from a year earlier. Final November sales figures for Wal-Mart and other major retailers will be out on Thursday.
"This is the first negative (comparison) we've seen in about 10 years from Wal-Mart and only the second one in about 25 years, so the idea of Wal-Mart having a negative comp certainly throws some spook into the marketplace," said John Lawrence, Senior Retail Analyst for Morgan Keegan, appearing on CNBC's Street Signs.
Pressure on Wal-Mart also dragged down other major retailers, down including Target, Sears Holdings, Federated Department Stores and J.C. Penney.
The Nasdaq slid 2% as investors sold shares of Google after Barron's reported that the stock looks due for a correction, based on higher expenses and slowing growth.
The Nasdaq was also dragged down by online retailers, despite signs that the holiday season was off to a strong start. Shares of Amazon, Ebay, Overstock.com and Blue Nile, an online diamond and jewelry seller, were all down.
Early reports indicated that retail sales on the first Friday after Thanksgiving were 6% higher than a year ago. Overall, analysts were encouraged by the heavy shopping on Friday, but some expressed concerns about deep discounts on merchandise.
"There is now significant concern that the holiday retail season is going to underperform," Gregory Miller, Chief Economist at SunTrust Banks told the Associated Press. "Traffic doesn't necessarily translate into profits."
The dollar rebounded from earlier lows, but not before hitting a 20-month low against the euro and a 3-month low against the yen. Some analysts see the weak dollar as a bad omen for the economy.
"I think the stock market rally could be over for the year," said Gina Sanchez, Portfolio Manager of the California Endowment Fund, appearing on CNBC's Power Lunch. "I think what the dollar is questioning is whether the U.S. economy is going to be stronger and right now the dollar is suggesting the economy is going to be weaker."
Oil prices were up following weekend comments by Saudi Arabia's oil minister favoring production cuts at the December OPEC meeting. Weather will likely be a driving factor affecting energy prices in the coming months. So far, temperatures in the U.S. have been warmer-than-normal in many areas.
Bonds fell, sending yields higher.
"Shares of Lowe's were higher after Banc of America Securities upgraded its rating from buy to neutral. The broker also lifted its price target on Home Depot from $42 to $45.
And the CEO and chief financial officer of Affiliated Computer Services resigned after an investigation found they were involved in manipulating stock options, The Wall Street Journal reported. The stock closed lower.
Europe Closes Down, Japan Ends Higher
In Europe, stocks dropped sharply as well on weakness in the dollar. The FTSE 100 in London, the German DAX and the CAC-40 in Paris all posted losses as exporters weighed on the markets.
The euro, which rose above the $1.30 level for the first time since April 2005 last Thursday, rose to a record high against the yen Monday, despite attempts by Paris to jawbone the currency down. French Finance Minister Thierry Breton said vigilance is needed on the dollar's weakening, while French Trade Minister Christine Lagarde was quoted in Japanese business daily Nihon Keizai saying the euro's rise has been considerable.
Asia finished mixed, with Japan up and Hong Kong down.
The Nikkei finished higher after some late buying. Defensive and bank stocks bolstered the Japanese market, while strong base metals prices pushed the Australian S&P/ASX 200 in sight of a new record.
United Microelectronics led the Taiwan index to another six-month high after private equity firm Carlyle Group offered to pay $5.5 billion for Advanced Semiconductor Engineering.