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Stocks cave into Europe worries, trade sharply lower in late afternoon

By staff and news services

Stocks' losses steepened as the trading day wore on Monday when investors seemed to lose confidence that the euro zone's latest plan to stem its debt issues would work.

Approaching 2:30 p.m. EST, the S&P 500 was off 1.96 percent and trading near its low for the day. The Dow Jones industrial average was off 1.80 percent and the Nasdaq was 1.78 percent lower.

Stocks plunged early Monday after two big rating agencies criticized a fiscal pact hatched at last week's summit of European leaders aimed at ending the region's debt crisis.

Fitch Ratings said at midday that the deal to bind Europe's budgets more closely made little difference. Fitch predicted that the region would face "a significant economic downturn" as it wrestles with the sovereign debt crisis, which may last "throughout 2012 and probably beyond."

Moody's Investors Service said earlier in the day that it will review the credit ratings of every European Union nation in the first quarter of next year. The statement doused optimism among investors that had lifted stocks and other risky assets late last week.

The summit produced "few new measures" and Europe remains in a "critical and volatile stage," Moody's said in a published report. It noted that the pact does not address Europe's immediate problem: the crushing debt loads of some nations and their rising borrowing costs.

“It looks like a reversal out of what was, from my standpoint, unwarranted optimism on Friday,” Keith B. Hembre, the chief economist and chief investment strategist at Nuveen Asset Management, told the New York Times. “It is a little bit of a puzzle as to why the market tends to act so euphoric going into these meetings only to act so disappointed.”

The Associated Press contributed to this report.