Stocks tumbled on Monday, tracking a sharp drop in global equity markets after rating agency Standard & Poor's cut the top-tier AAA credit rating of the United States, rattling already-jittery investors.
The technology heavy Nasdaq fell more than 3 percent at the open.
Market sectors most sensitive to the economy, such as the banking and natural-resource sectors, took the brunt of selling. United States Steel Corp fell 6.2 percent to $31.18, while Citigroup Inc dropped 5 percent to $31.83.
S&P cut the U.S. long-term credit rating by a notch to AA-plus late Friday on concerns about debt in the world's largest economy. The downgrade could eventually raise borrowing costs for the U.S. government, companies, as well as consumers.
The move came after a wild week for Wall Street -- its worst in more than two years -- as lingering concerns about sluggish economic growth and fears of a financial meltdown in the euro zone hit sentiment.
‘You Opened My Eyes to the Catastrophic Enormity of This Financial Debacle’
Debt ceiling ‘medicine will become the poison,’ according to famed economist. Brace for economic meltdown. Watch the Aftershock Survival Summit Now, See the Evidence.
Even the European Central Bank's dramatic intervention in bond markets, which pushed down yields on Spanish and Italian bonds, was not enough to stem selling.
"What's concerning us and holding us back from buying what we think is value is that the ferocity of the momentum of the downside is still quite strong," said Paul Zemsky, head of asset allocation at ING in New York
The Dow Jones industrial average dropped 215.55 points, or 1.88 percent, to 11,229.06. The Standard & Poor's 500 Index fell 27.71 points, or 2.31 percent, to 1,171.67. The Nasdaq Composite Index lost 58.30 points, or 2.30 percent, to 2,474.11.
The New York Stock Exchange invoked a special regulation known as Rule 48 to smooth trading at the market open.
MSCI's all-country world stock index dropped 2.5 percent and hit its lowest since September 2010.
Safe-haven assets were in demand. Gold vaulted above $1,700 an ounce for the first time on Monday and hit a record $1,715.01.
Last week's steep drop in equities wiped about $2.5 trillion off global market valuations. The S&P 500 has fallen over 12 percent since the end of April, with much of that selling coming on heavy volume last week. Prior to Monday, the index had retreated 11 percent in the last 11 sessions.
Analysts said the S&P 500 index could test Friday's intraday low of 1,168.09. Some traders are looking for a pullback to the 32.8 percent retracement of the rally from the index's bear market low on March 2009. That level is around 1,100.
ING's Zemsky said he was looking for support at 1,130, the level of a stock market breakout in September 2010, but warned that fast moving markets can quickly fall through support points.
© 2014 Thomson/Reuters. All rights reserved.