Analysts said that Wall Street’s drop was also a carryover from last week’s disappointing report on United States unemployment and from news that major American banks were facing a federal lawsuit related to their handling of mortgage securities.
While stocks slumped in early trading by about 3 percent, they curbed losses toward the end of the day. The Dow Jones industrial average of 30 stocks was down 0.9 percent, or 100.96 points, to 11,139.30. The Standard Poor’s 500-stock index lost 0.7 percent, or 8.73 points, to 1,165.24, The Nasdaq composite fell 0.3 percent, or 6.50 points, to 2,473.83.
Investors stayed with the security of fixed-income instruments. The Treasury’s benchmark 10-year note rose 3/32, to 101 9/32. The yield fell to 1.98 percent from 1.99 percent late Friday.
“The whole market is under pressure because of what is going on in Europe,” said Jason Arnold, a financial analyst with RBC Capital Markets.
The equity losses were reminiscent of those on Friday, when the Labor Department reported zero job growth in the United States economy in August. In addition, the market reacted to reports of impending legal action by federal regulators against 17 financial institutions that sold Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured. Investors fled financial shares, and on Tuesday the sector continued to be hit hard, closing 1.7 percent lower.
Bank of America and JPMorgan Chase each declined more than 3 percent. Bank of America fell to $6.99 and Chase to $33.44. Citigroup fell 2.5 percent to $27.70. Morgan Stanley was down nearly 4 percent at $15.33
Bank stocks, which are particularly sensitive to prospects for lending and housing, are seen as being at additional risk because of regulatory and legal issues after the lawsuits were filed on Friday. “There really has not been particularly good news in the financial space for a while,” Mr. Arnold said. “It is just waning optimism for financials.”
But most of the focus in the markets has been on the lack of progress in solving persistent euro zone debt problems, which “is creating a pocket of selling with no buyers,” said Alan B. Lancz, the president of Alan B. Lancz Associates. In addition, investors are concerned about the impact on global growth of weak economic data.
The market turmoil of recent weeks showed no signs of letting up. On Tuesday, gold rose to another nominal high, and Swiss authorities took action to weaken the franc, which has soared because of its role as a haven.
In the United States, economic data was scrutinized for any sign of strength in the country’s recovery. The Institute for Supply Management said Tuesday that the services sector of the economy expanded in August, the 21st consecutive month it has done so, as reflected in the 53.3 reading of the I.S.M. nonmanufacturing index, although expansion in some sectors, like business activity, was slowing down.
The survey exceeded forecasts assembled by Bloomberg News that pointed to a reading of 51. A reading of 50 is meant to be the dividing line between an expanding economy and a contracting one.
Debt concerns related to the euro zone, particularly over Greece and Italy; the bank lawsuits in the United States; and worries about economic growth were the biggest factors damping prices, Michael A. Mullaney, vice president of the Fiduciary Trust Company, and other analysts said.
“Friday set the tone with the employment report,” Mr. Mullaney said. “We are basically hard struck to find out where the growth engines are going to come from.”
The conditions were worryingly similar to those of the sell-off that followed the collapse of Lehman Brothers in 2008, Deutsche Bank’s chief executive, Josef Ackermann, said Monday.
In Zurich, the Swiss National Bank said it was setting a minimum value of 1.20 francs per euro and was prepared to spend an “unlimited” amount to defend it. The central bank was acting to help the country’s exporters, who fear being priced out of foreign markets by the strong franc.
Asian and European markets were lower. Gold futures eased slightly to $1,869.90 an ounce after rising more than 1 percent to more than $1,900 an ounce in Comex trading.
David Jolly and Bettina Wassener contributed reporting.
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