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.

Greece has been reliant since May 2010 on regular loans from a 10 billion euro ($150 billion) bailout from other eurozone countries and the International Monetary Fund. It was granted a second 9 billion euro package in July, but the details of that deal are still being worked out.

Under the first bailout, Greece has to achieve certain targets in order to get the cash it needs to pay off its bondholders and pay salaries and benefits. Representatives of the so-called troika — the European Commission, European Central Bank and IMF— are in Athens now, trying to assess whether Greece has done enough to get its hands on the next batch of bailout cash.

Finance ministers from the 17 euro countries, including Greece's Evangelos Venizelos, are meeting later Monday in Luxembourg to assess the latest Greek developments.

"Greece continues to be the major source of market angst as we head into the final quarter of 2011," said Michael Hewson, market analyst at CMC Markets. "Today's meeting of finance ministers will continue to delay the inevitable and look at ways and means of avoiding a Greek default."

In Europe, Germany's DAX was down 2.3% while the CAC-40 in France fell 1.9%. The FTSE 100 index of leading British shares was 1.03% lower.

Worries over Greece were taking a particular toll on Europe's banks as investors worry about their potential exposure to Greek debt and about the possibility of a disorderly debt default by the country.

Dexia, which is based in France and Belgium, was one of the worst performing stocks in Europe, trading as much as 14% lower, after ratings agency Moody's said it was reviewing its rating for a possible downgrade and reports that the finance ministers from France and Belgium were discussing ways of helping the bank out.

With so many worries around, the euro was trading 0.5% lower at $1.3334.

The losses in Europe followed a big retreat in Asia, with Hong Kong's Hang Seng leading the way lower with a 4.4% decline to 16,822.15. Japan's Nikkei fell 1.8% to 8,545.48 even after a government survey showing an improvement in business confidence among Japanese manufacturers. Meanwhile China's main index in Shanghai declined 0.3% to 2,359.22.

The U.S. data this week culminates with Friday's nonfarm payrolls report for September. The figures often set the tone in markets for a week or two and another weak number could well reinforce concerns over the world's largest economy.

Central banks in Europe will also feature, with both the European Central Bank and the Bank of England under pressure to do more to boost growth. A particularly grim eurozone manufacturing survey has added to expectations that the ECB will cut its main interest rate from the current 1.5% some time over the next couple of months.

Though inflation in both the eurozone and Britain are running uncomfortably above target, investors will be looking to see if the ECB reverses course and starts cutting rates, just two months after raising them, and if the Bank of England authorizes another monetary stimulus.

Oil prices tracked equities lower — benchmark oil for November delivery was down $1.31 to $77.89 per barrel in electronic trading on the New York Mercantile Exchange.