The Standard Poor’s 500-stock index was down 2.85 percent, or 32.19 points. The Dow Jones industrial average was off 258.08 points, or 2.36 percent, to close at 10655.30, and the Nasdaq composite index dropped 3.29 percent. The yield on the 10-year Treasury bond fell to 1.75 percent.

European markets fell after Asian stocks closed sharply lower.

Greece’s acknowledgment over the weekend that it would miss its deficit-reduction targets for this year and next, despite additional cuts in the public payroll, weighed on market sentiment, analysts at the French investment bank Crédit Agricole CIB wrote in a note.

Finance ministers from the 17 European Union nations that use the euro were meeting Monday in Luxembourg, but no decision was expected this week on whether to release the next installment of Greece’s bailout package.

The Purchasing Managers’ Index, a survey measuring economic activity in the euro zone, gave a dim outlook of the Continent’s economy. It registered at 48.5, its lowest measure in over two years. A figure of below 50 shows contraction. New orders fell to their lowest levels in 27 months. The only country in the euro zone to show any growth was Germany.

The worsening economic picture in Europe is driving down the euro, said Brian Dolan, chief currency strategist at Forex.com, a unit of the trading firm Gain Capital. It dropped to $1.3281, its lowest level since January.

“The euro zone has no growth solution to their debt crisis, and whatever they do in terms” of establishing a rescue fund, he said, “it’s not going to be a long-term solution,” he said.

Investors are awaiting a meeting of the European Central Bank on Thursday, and many expect the bank to cut interest rates. Analysts say such action could push the euro lower.

The dollar gained against most major currencies, as traders moved out of relatively risky assets. Its price in Swiss francs rose to 0.9183, up from 0.9082 francs. But it fell to 76.67 yen, down from 77.06 yen.

Meanwhile, in the United States, a report from the Institute for Supply Management showed stronger growth in factories in September than had been expected. The index registered 51.6 points, showing expansion — a reading over 50 — for the 26th consecutive month. But the index was still lower than a year ago and new orders contracted slightly, hinting at continued troubles ahead.

Construction spending increased 1.4 percent in August, according to the Commerce Department, driven largely by gains in the public sector.

And General Motors, Ford and Chrysler reported increases in sales of new vehicles last month, one of few areas of sharp growth in the domestic economy.

The stock prices of airlines were driven sharply lower by general concern about the American economy and speculation that AMR, the parent company of American Airlines, may be headed for bankruptcy. The concern about AMR stemmed from a report that an unusually large number of pilots have retired in recent months, said Ray Neidl, an analyst with Maxim Group. AMR’s stock price was down over 33 percent to $1.98. Delta’s stocks were down 11 percent, US Airways Group’s stocks were down almost 16 percent and Alaska Air Group’s shares fell about 9 percent. Airlines share prices are particularly sensitive to fears of economic downturn, because air travel drops sharply in times of economic strain.

Global equities, as tracked by the MSCI World Index, are down 14 percent so far this year, with many major indexes just concluding their worst quarterly drops since the world’s banks were teetering on the brink in 2008.

The broad American market, as measured by the S. P. 500, was down 10 percent in the first three quarters of 2011.

On Monday, the Euro Stoxx 50 index, a barometer of euro zone blue chips, closed down 1.9 percent, while the FTSE 100 index in London gave up 1 percent. The DAX in Frankfurt fell 2.3 percent.

Banks led the declines in Europe. Shares of Dexia, a French-Belgian lender that has struggled since it was bailed out in 2008, had fallen more than 9 percent after Moody’s Investors Service said it was considering a downgrade of the bank’s credit ratings. Investors were concerned about the bank’s exposure to Greek debt.

Asian shares were lower across the board. The Sydney market benchmark index fell 2.8 percent. In Hong Kong, the Hang Seng index closed down 4.4 percent.

Markets in mainland China and South Korea were closed for holidays.

In Japan, the Nikkei 225 stock average closed 1.8 percent lower despite news that business confidence had improved somewhat during the third quarter as the country continued its recovery from the devastating earthquake and tsunami that struck on March 11.

The Bank of Japan’s Tankan, a survey that tracks business sentiment, found confidence among large manufacturers as it rose to plus 2 in September, from minus 9 in June. Though the number remains weak, a reading in positive territory indicates that optimists outweigh pessimists.

American crude oil futures for November delivery were down 2.7 percent, at $76.93 a barrel. Comex gold contracts for December delivery were up 1.87 percent, at $1,654.20 an ounce.

David Jolly, Stephen Castle and Bettina Wassener contributed reporting.

This article has been revised to reflect the following correction:

Correction: October 3, 2011

Because of an editing error, an earlier version of this article misstated the price of oil. It is trading slightly above $77, not $777.

Article source: http://www.nytimes.com/2011/10/04/business/global/daily-stock-market-activity.html?partner=rss&emc=rss