U.S. stocks took their biggest drop in two weeks after the German government played down hopes that Europe's debt crisis would be resolved soon.
Expectations that a solution could be reached at an upcoming European summit lifted stocks last week. But Germany's finance chief Wolfgang Schaeuble said Monday those expectations were too optimistic.
For the major indexes, it was the worst day since Oct. 3. The Dow Jones industrial average dropped 247 points, or 2.1 percent, to close at 11,397.
The S&P 500 index lost 24, or 1.9 percent, to 1,201.
The Nasdaq fell 53, or 2 percent, to 2,615.
Weak corporate earnings reports also pulled stocks lower.
Nearly five stocks fell for every one that rose on the New York Stock Exchange. Trading volume was below average at 3.7 billion shares.
Stock markets around the world had rallied last week after the leaders of France and Germany pledged to come up with a far-reaching solution to the region's debt crisis by the end of October. That pledge appeared to be pushed back by German officials Monday. Schaeuble said he expects European leaders to adopt a framework to tackle the crisis on Sunday. A spokesman for German Chancellor Angela Merkel said discussions on how to solve Europe's debt problems will likely last into the new year.
Concerns about a messy default by the Greek government have been the main cause behind many of the stock market's big swings lately. The fear is that a default would cause deep losses for European banks that hold Greek bonds. That could lead to a freeze in lending between banks and escalate into another financial crisis similar to the one that occurred in 2008 after the collapse of Lehman Brothers.
The apparent setback on Europe's debt crisis coincided with mixed economic reports in the U.S. A measure of U.S. industrial production rose for a third month, but a gauge of New York area manufacturing fell more than Wall Street expected.
The mixed results helped push up the price of lower-risk assets. The yield on the 10-year Treasury note fell to 2.17 percent from 2.25 percent late Friday. Yields on bonds fall when demand for them increases and investors become more willing to accept lower returns in exchange for holding assets they consider to be safe.
In corporate news, Kinder Morgan said late Sunday that it would buy El Paso Corp. for $20.7 billion. The deal would create America's largest natural gas pipeline operator. El Paso jumped 24 percent. Kinder Morgan Inc., gained 6 percent.
Banks were lower. Citigroup Inc. fell 1.7 percent, less than the overall market, after the bank said a decline in loan losses helped it beat Wall Street's profit forecasts. Wells Fargo & Co. lost more than 8 percent after the bank's third-quarter revenue fell below expectations.
The parent of American Airlines, AMR Corp., sank 6 percent on news the company and its pilots failed to reach agreement on a new contract over the weekend.