NEW YORK — A political stalemate in Greece rattled financial markets worldwide on Monday, driving U.S. stocks lower.
The euro sank to a three-month low against the dollar and borrowing costs for Spain and Italy jumped as bond traders anticipated that financial stress could spread far beyond Greece. Investors dumped risky assets and plowed into the safety of the U.S. Treasury market, pushing yields to their lowest levels this year.
The Dow Jones industrial average dropped 125.25 points to close at 12,695.35. The Dow has lost more than half of its gains for the year in the past two weeks as worries resurface about Europe and the strength of the U.S. economy.
In Athens, talks between political parties to form a government dragged into a second week. The uncertainty has raised concerns that Greece could miss a debt payment and drop the euro currency. The worry is that if Greece leaves the currency union, bond traders may demand steeper borrowing rates from other troubled countries and push them deeper into debt.
The turmoil could easily spread to the U.S. through the banking system. “The large banks are globally connected,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. “The concrete fear is that if Greece exits the euro, that would hurt European banks. They’ll pull back lending to U.S. banks and then they’d be in worse shape.”
In other trading, the Standard & Poor’s 500 index dropped 15.04 points to 1,338.35. The Nasdaq composite sank 31.24 points to 2,902.58.
The losses swept across the market. All 10 of the industry groups within the S&P 500 fell.
JPMorgan Chase’s $2 billion trading loss continued to hang over bank stocks. JPMorgan dropped 3 percent. Morgan Stanley and Citigroup, two banks with large trading operations, sank more than 4 percent.
The loss to JPMorgan appears “manageable,” said Matt Freund, a portfolio manager at USAA Investments. “But people are looking at other banks and wondering who’s going to be next? What else could be lurking?”
Major markets in Europe plunged. France’s CAC-40 and Germany’s DAX lost 2 percent. Benchmark indexes fell nearly 3 percent in Italy and Spain.
In other news:
CHESAPEAKE ENERGY: It jumped 4 percent on reports that investor Carl Icahn bought a stake in the natural gas company. Chesapeake’s CEO said he’d welcome an investment by Icahn, who is known for shaking up companies.
BEST BUY: The electronics retailer rose 1 percent after the company’s founder, Richard Schulze, said he would step down as chairman. An investigation found that he knew the CEO was having a relationship with a female employee and didn’t tell an audit committee.
RESIDENTIAL CAPITAL LLC: The perpetually troubled mortgage subsidiary of government-owned Ally Financial Inc. has filed for bankruptcy protection. The filing will separate the money-losing operations of ResCap from Ally’s auto loan and banking businesses, allowing the company, the former financial arm of General Motors, to speed up repayment of its government bailout from 2009.
LIGHTSQUARED: The company, which hoped to create an independent wireless broadband network in the U.S., filed for bankruptcy protection on Monday. Regulators blocked its plan this winter because of concerns that its transmissions would interfere with GPS navigation.