NEW YORK – Pessimism about Greece's financial problems returned to the financial markets Monday. Stocks fell sharply as investors once again doubted that the country will be able to avoid a default on its debt.
Even after a late-day rally cut its losses by nearly half, the Dow Jones industrial average closed down 108.08, or 0.9 percent, at 11,401.01. The drop ended five days of gains for stocks and marked the return of the back-and-forth trading that has accompanied the uncertainty about Europe's debt crisis.
The Nasdaq composite fell 9.48, or 0.4 percent, to 2,612.83. The Standard & Poor's 500 index fell 11.92, or 1 percent, to 1,204.09. The S&P 500 gained 5.4 percent last week as it appeared Greece would get its bailout. But European finance ministers said Friday they would delay authorizing an $11 billion installment of emergency funds for Greece until October.
On Monday, the country's finance minister held an emergency teleconference with its international creditors. They are pressuring the government on austerity measures to reduce Greece's debt. Investors fear Greece won't be able to convince lenders that it can pay its debts — and that it won't get the money it needs to avoid a default on debts that must be paid next month.
Late Monday, Greece's finance minister said that the 2 1/2-hour conference call was "productive and substantive." Hope that Greece might be closer to qualifying for rescue funds started a late comeback. The Dow gained about 100 points in the last hour of trading.
But investors also appeared pessimistic about a Federal Reserve policy decision expected Wednesday. Some economists believe that since the Fed decided to hold a two-day meeting instead of the originally planned one-day session, that it was preparing to take steps to stimulate the economy. However, other analysts doubt that the Fed will announce a new plan for the economy.
There is too much disagreement among Fed officials about monetary policy for a decision right now, said Ralph Fogel, head of investment strategy at Fogel Neale Partners in New York. "They'll have to let it play out at least a little while longer, and I think they'll wait until November," Fogel said.
Separately, President Barack Obama on Monday called for $1.5 trillion in new taxes to help reduce the U.S. deficit. He said, "we can't just cut our way out of this hole."
The proposal is being opposed by House Speaker John Boehner, who has said the Republican Party won't accept any tax increases to lower deficits. Obama's speech marked the start of a new round of deficit-reduction negotiations that are likely to be contentious.
For investors, the day's news added up to more uncertainty. "The market just can't stand not knowing what's going on," Fogel said.
Investors have been sensitive to each development that emerges from Europe, and that has helped feed the volatility in stocks the past few months.
"After every meeting in Europe there's a spin put on it -- either 'this was good and a solution's really soon,' or someone looks the wrong way and the media says there's no solution," said Rob Lutts, president and chief investment officer of Boston-based Cabot Money Management.
If Greece were to default on its debt, other European countries with heavy debt would likely be judged less credit-worthy and have difficulty borrowing money. But the problems go beyond Europe. U.S. bank stocks have fallen on concerns that a default would make it hard for European banks to pay their bills — including the billions of dollars that U.S. banks have lent them. There are concerns about a lending crisis similar to what the world saw in 2008.
There is also concern about a recession in Europe, which already has a weak economy. The companies in the S&P 500 get 20 percent of their net income from European countries. If their business suffers, that could also hurt the struggling U.S. economy.
The uncertainty wasn't limited to U.S. investors. In Europe, Germany's DAX closed 2.8 percent lower. France's CAC-40 fell 3 percent, and the FTSE 100 index of leading British shares fell 2 percent. Those markets closed before the news about the teleconference between Greece and its creditors.
Lutts, the Cabot analyst, said some investors are also uneasy about earnings reports that will start arriving in early October.
"In the last year or so we had a nice ramp-up in earnings -- that's history now," Lutts said. He said companies are contending with the steady rise this year in commodities and raw materials prices, and many are unable to raise their own prices because that hurt their ability to compete.
"The market is worried that (earnings reports) won't be rosy and that we'll see a downshift, not an upshift, in earnings."
Investors were again buying U.S. government debt, which is seen as a safe place when the economy is weak and stocks are falling. The yield on the 10-year Treasury note, which falls as investors buy bonds and push its price higher, fell to 1.95 percent, near its low for the year. It was at 2.07 percent late Friday.
The U.S. dollar, another asset seen as safe, also rose against a basket of foreign currencies. Concerns about the stability of the European economy pushed the Euro lower against the dollar, to $1.36 from $1.38 late Friday.
In corporate news, Goodrich Corp. rose 16 percent on speculation that United Technologies Corp. is interested in buying the aerospace manufacturer. United Technologies fell 1.2 percent.
Tyco International Ltd. rose 2 percent after the manufacturer announced a plan to split into three companies.
Lennar Corp. rose 5 percent after the homebuilder's earnings met Wall Street's expectations and revenue came in stronger than expected. The company said that while it delivered fewer homes in its fiscal third quarter, demand is picking up somewhat, driven by low home prices and all-time low interest rates. The company was cautious about the future, however, because of high unemployment.
Netflix fell 7 percent after the company said it was formally separating its online streaming service from its mail-in DVD rental service, which is being renamed Qwikster.
Chinese solar equipment factory Jinko Solar plunged 28 percent after it was forced to shut down one of its factories because of protests by local residents who claimed it was polluting the air and water.
About six stocks fell for every one that rose. Trading was light, at 3.7 billion shares.