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Stocks Slide Over 2% Amid Factory Weakness

Stocks opened lower Monday as a key manufacturing gauge came in weaker than expected and the dollar made a comeback.

Major indexes were down more than 2 percent in morning trading.

And the CBOE Volatility Index, widely considered the best gauge of fear in the market, pushed above 30.

Wall Street had an impressive roll heading into the new week: The Nasdaq has chalked up weekly gains in 13 of the past 14 weeks, while the Dow and the S&P 500 had risen in 12 of the past 14 weeks. All three indexes were positive for the year as of Friday's close and the Dow and S&P were on track for their best quarterly gains since the fourth quarter of 1998.

But weak economic data and the strong dollar threw water on the rally.

The New York Empire Manufacturing Index slumped 9.41 pointsin May, indicating difficult times in the sector and presenting a headwind for economic growth.

U.S. Treasury Secretary Timothy Geithner said the financial system was beginning to thaw but that the economic recovery would be slower than usual and that unemployment would likely continue to rise.

"Recovery will be slower than we would normally see," Geithner said at an economic summit sponsored by Time Warner."This is still going to be an exceptionally challenging time for business and consumers."

International Monetary Fund chief Dominique Strauss-Kahn took it a step further, saying the worst may be yet to come for the global economic crisis.

The dollar rebounded against major currenciesincluding the euro, yen and pound.

And crude oildropped below $72 a barrel, after trading above $73 last week.

Commodity and heavy industrial stocks led the decline, with Alcoa , Caterpillar and Boeing the three biggest decliners on the Dow.

And Wal-Mart took a hit after Goldman Sachs cut its rating on the stock to "neutral" from "buy," saying it doesn't see a lot of positive catalysts to drive shares higher in the near term amid cost pressures and tough comparisons.

Meanwhile, Goldman added Wal-Mart rival Target to its "conviction buy" list, saying it expects significant earnings momentum for the retailer in the fourth quarter.

Meanwhile, financial institutions may be facing tougher capital and liquidity requirements under new rules designed to avoid another financial crisis, the US administration revealed Monday.

And Forbes CEO Steve Forbes told CNBC that the Federal Reserve should stop buying government debt and move its attention to consumer focused areas of the credit market.

Microsoft and Yahoo were among the few beacons pointing higher today — albeit slightly — in this sea of red.

For Microsoft, the buzz about Bing continued, like this Tech Crunch piece that explains how Bing outperformed Google in Laker results this weekend. Still, it's going to be tough for Microsoft to translate such rave reviews into market share, given Google's near synonymity with search.

And credit-card issuer Visa was up more than 1 percent.

Still to come: The National Association of Home Builders issues its monthly reading of builder sentiment at 1 pm.

This Week:

MONDAY: Obama meets in Washington with G8 head on global economic regulations; Obama speaks on health-care reform; airline-safety summit; NAHB housing index
TUESDAY: Housing starts; PPI; industrial production; Obama hosts South Korean leader to discuss North; Madoff sentencing; Earnings from Best Buy, Smithfield Foods, Adobe
WEDNESDAY: Bernanke speaks; weekly mortgage applications; CPI; crude inventories; Obama to outline plans for financial reform; Earnings from FedEx
THURSDAY: Weekly jobless claims; leading indicators; Philly Fed index; Earnings from Research In Motion
FRIDAY: Quadruple witching

Send comments to cindy.perman@nbcuni.com.