NEW YORK (CNNMoney) -- European political uncertainty and another sign of a slowdown in the Chinese economy pushed stocks down Monday, with the three major U.S. indexes falling more than 1% before rebounding somewhat in afternoon trading.
Investors reacted to news that French President Nicolas Sarkozy came in second place in the first round of elections there behind Socialist candidate Francois Hollande, who has been openly hostile to EU austerity measures.
Plus, the Dutch prime minister, Mark Rutte resigned, putting that country's prized AAA rating in jeopardy.
News of a slowdown in China's manufacturing sector also exacerbated investors' skittishness at the start of what will be a busy week on the economic and earnings front.
"The events over the weekend re-ignited concerns that the European community is going to have trouble working out a coordinated plan for austerity," said Douglas DePietro, head of equity sales trading at Evercore.
The Dow Jones industrial average () ended the day down 102 points, or 0.8%. The S&P 500 ( ) shed 12 points, or 0.8%, and the Nasdaq ( ) lost 30 points, or 1%.
Shares closed down nearly 5%, and shares of its publicly traded Mexico unit dropped nearly 12%. The company says it is investigating the allegations.
U.S. stocks finished mostly higher Friday, as investors welcomed another round of strong earnings from corporate America and positive news out of Europe. However, the tech-heavy Nasdaq finished lower for a third straight week.
Europe: French President Sarkozy, one of the architects of the European agreement to avert sovereign debt default, lost the first round of elections and will face Hollande in a May 6 runoff.
Meanwhile, the Dutch Prime Minister's resignation prompted new elections, after one of his coalition partners in the government withdrew due to negotiations over the 2013 budget. This could place the Netherlands' AAA credit rating at risk, according to Kathleen Brooks, research director of Forex.com.
"Holland was once considered a 'safe' triple A nation, however, that may not be the case," Brooks wrote in a note to clients Monday. "The Netherlands has overtaken France as the largest political risk this week."
The latest reading on eurozone manufacturing also fell unexpectedly Monday to the lowest level since November, a sign that the 17-nation block has fallen further into recession.
Worries that the problems in Europe are still not over were further driven home by Christine Lagarde, the managing director of the International Monetary Fund. Lagarde warned at meetings of the IMF and World Bank over the weekend that the "dark clouds on the horizon" for the global economy threatened the "light recovery blowing in a spring wind."
European stocks ended sharply lower on Monday. Britain's FTSE 100 () shed 1.85%, while the DAX ( ) in Germany plunged 3.4% and France's CAC 40 ( ) dropped 2.8%.
Asian markets ended lower across the region. The Shanghai Composite () shed 0.8%, the Hang Seng ( ) in Hong Kong closed down 1.8% and Japan's Nikkei ( ) slid 0.2%.
Companies: It was a busy merger Monday with two deals announced ahead of the open. Dow component Pfizer ( , Fortune 500) reached an agreement to sell its baby formula business to Nestlé ( ) for $11.85 billion in cash. And AstraZeneca ( ) announced it is buying Ardea Biosciences ( ), a California-based biotechnology company, for $1.3 billion, or $32 a share -- a 54% premium from Friday's closing price.
Xerox reported adjusted earnings of 23 cents a share, unchanged from a year earlier and matching forecasts. Its shares spiked following the report, but closed up only slightly. ConocoPhillips posted improved earnings of $2.02 a share, but it fell short of forecasts of a $2.08 a share. Its shares lost 0.8%.
Kellogg's shares plummeted 6% after the cereal company cut its outlook citing the slowdown in Europe.
Shares of Netflix (Netflix managed to beat analysts' estimates but that wasn't enough to help the stock. The company reported a first quarter loss of 8 cents per share better than forecasts for a 27 cents per share loss.) dropped nearly 14% in after hours trading on a weak outlook for the current quarter.
The biweekly Lundberg Survey marked its first decline of the year, while the daily survey from AAA showed its seventh straight decrease, further raising hopes that gas prices might have already peaked for the year.
Oil for June delivery fell 77 cents to $103.11 a barrel.
The dollar gained strength against the euro and the British pound, but slipped against the Japanese yen.
Gold futures for June delivery lost $10.20 to $1,632.60 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury edged higher, pushing the yield down slightly to 1.93%.
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