A U.S. congressional committee was expected to concede they had failed to reach a deal after three months of talks over taxes and spending in an attempt to slash the deficit.
Thedevelopments in Washington and Europe created further headwinds for the and could extend the previous week's losses.
"People are just wary to commit heavily to the market if you've got a particular day thatno particular good news came out over the weekend anywhere -- there is virtually no good news and several data points were negative," said Rick Bensignor, chief market strategist at Merlin Securitiesin New York.
In addition, Moody's said a recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for the country's credit rating.
In Europe,the FTSEurofirst 300 (.FTEU3) index fell 3.1 percent. Along with the new concerns about France, Spanish prime minister-elect Mariano Rajoy was under pressure to detail his policies to overcome a severeeconomic crisis after his center-right party won the country's biggest election victory in 30 years.
Bensignor said the negative headlines from across the globe made it less likely the market wouldsee a sustained rally despite stocks having what many see as attractive valuations.
"Cheap valuations only do so much, they don't make bull markets, they make bidders to curtail down markets but inand of themselves the fact that stocks are cheap is not a good enough reason to think that they are going to go higher."
The Dow Jones industrial average (DJI:^DJI) dropped 301.34 points, or 2.55percent, to 11,494.82. The Standard & Poor's 500 Index (SNP:^GSPC) (Chicago Options:^INX) lost 28.24 points, or 2.32 percent, to 1,187.41. The Nasdaq Composite Index (Nasdaq:^IXIC) slid 62.65 points, or...