Dow loses 2.4%: Stocks sink, S&P at new 2011 low

— -- U.S. stocks fell sharply in afternoon trading after seesawing through most of the morning. The Dow Jones industrial average closed down 2.4% and the S&P 500, which ended down 2.9%, hit a new low for the year.

European markets slumped, dragging U.S. stocks down along with them, after Greece said it will miss deficit reduction targets it agreed to as part of its bailout deal. Benchmark indexes in Germany, France and Spain all fell 2 percent.

The Dow briefly turned higher after 10 a.m., when the Institute of Supply Management said its gauge of U.S. manufacturing did better than Wall Street had predicted in September. The Dow and S&P turned mixed within 20 minutes, then took a sharp slide shortly after noon.

All 10 company groups in the S&P index fell. Banks, energy, and consumer discretionary stocks had the steepest declines. The yield on the 10-year Treasury note fell to 1.79% from 1.91% late Friday as investors piled into lower-risk investments.

"The market is continuing to trade based on what is happening in Europe, and that is going to overshadow everything else," said Quincy Krosby, market strategist at Prudential Financial. "The math (for the Greek bailout) didn't add up a year ago, and the math doesn't add up today. The market knows that and is waiting for the Europeans to acknowledge it."

The renewed concerns about Europe's debt problems pushed the U.S. dollar up 0.8% against the euro. That could hurt large U.S. companies that rely on exports by making their products more expensive overseas. Coca-Cola fell 3%. Caterpillar, which sells construction equipment globally, lost 3.8%.

Concerns that the U.S. economy is headed for another recession helped send the S&P 500 index, the basis for most mutual funds that invest in U.S. stocks, down 14% the three months ended in September. It was the worst quarterly performance for the stock market since the financial crisis of 2008.

In corporate news, Yahoo gained 2.3% to $13.45, after the head of Chinese Internet company Alibaba Group Holdings said he would be interested in buying the company. Yahoo, which recently ousted Carol Bartz as its CEO, has been trying to decide whether to sell parts of the company.

Bank of America fell to its lowest price since the financial crisis in 2008. The bank lost 4.8% to $5.83. The company has fallen 56% since January.

Netflix rose 0.2% after an analyst from Morgan Stanley upgraded the company following a sharp drop in its stock price. Netflix has plummeted 60% from its recent high of $304 because of a drop in subscribers and a plan to split its streaming service from its DVD-by-mail business.

On Sunday, Greece's finance ministry said the deficit this year will likely be 8.5% of its gross domestic product, higher than the 7.8% previously anticipated, and blamed a deeper-than-expected recession for the failure. The Greek economy is projected to shrink 5.5% this year.

The revelation that Greece is finding it increasingly difficult to reduce its borrowings in spite of all its austerity measures has raised fears that international creditors will effectively pull the plug.

Without the latest 8 billion euro ($10.8 billion) loan, Greece has said it won't be able to pay all its bills starting in mid-October.