Dow records worst drop in 3 months

Associated Press

NEW YORK

Stocks are having a bad flashback to last spring, when fears about the European debt crisis sent the market spiraling lower.

On Monday, election results in Italy showed a race too close to call, leaving investors fearful that the country will struggle to form a government that can move forward with reforms to revive the economy.

The Dow Jones industrial average posted its worst drop in more than three months. The Standard & Poor’s 500, which had its first weekly decline of the year last week, piled on more losses Monday.

The Dow fell 216.40 points, or 1.6 percent, to 13,784.17, its biggest drop since Nov. 7. The S&P 500 fell 27.75 points, or 1.8 percent, to 1,487.85, falling below 1,500 for the first time in three weeks. The Nasdaq composite dropped 45.57 points, or 1.4 percent, to 3,116.25.

Investors worry about the outcome of Italy’s election because it could set off another crisis of confidence in the region’s shared currency, the euro.

The Dow started the day gaining as much as 81 points on early optimism that Italian elections would produce a government willing to stay the course with reforms. The index drifted lower and then slumped, giving up about 150 points in the last hour of trading.

“This is what markets feared,” says Jim Russell, a senior equity strategist at US Bank Wealth Management. “Stability in Europe is paramount to the markets.”

Italy has the eighth-largest economy in the world, and the market for Italian government bonds ranks as the third-largest, behind Japan and the U.S.