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NEW YORK (CNNMoney) -- Stocks fell early Monday, with shares of major banks leading the decline.
Investors remain on edge about the European economy ahead of a key meeting of leaders there later in the week.
The Dow Jones industrial average (INDU) tumbled 128 points, or 1%, shortly after the opening bell. The S&P 500 (SPX) slid 14 points, or 1%, and the Nasdaq (COMP) sank 36 points, or 1.2%.
Bank stocks JPMorgan (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) were the worst performers on the Dow. Wal-Mart (WMT, Fortune 500) was the only gainer on the index as investors gravitated towards defensive stocks, such as consumer staples.
European markets were also under pressure. Stocks in London, Frankfurt and Paris were all down between 1% and 2%. The euro lost 0.6% against the U.S. dollar to $1.25.
All eyes will be firmly fixed on Europe this week, which culminates with a key two-day EU summit starting Thursday. Hope is running high for leaders to put together a concrete plan. But expectations are low.
Moody's is preparing to downgrade the credit rating of several Spanish banks, according to Reuters. Shares of Santander (SAN) and BBVA (BBVA), the two largest Spanish banks, were both down about 5%.
Early Monday, Spain formally requested aid for its banking sector, as expected.
The country has been struggling under a pile of debt and worries that it might need a bailout, as yields on the Spanish 10-year bond recently flirted with 7% -- a level that flashes warning signs about a country's debt level. Yields have since retreated to around 6.5% but Spain remains on shaky ground.
"If you didn't really want to buy Spanish bonds, you certainly don't want to after this formal request," said Elisabeth Afseth, a fixed income analyst with Investec in London.
In the United States, the government will release figures for new home sales in May. The Supreme Court could also announce a ruling on President Obama's health care reform law.
U.S. stocks closed higher Friday, one day after fears of slow growth and bank downgrades sent them spiraling downward.
World markets: European stocks were in the red in afternoon trading. Britain's FTSE 100 (UKX) slid 1.2%, the DAX (DAX) in Germany dropped 2% and France's CAC 40 (CAC40) lost 1.9%.
Asian markets ended lower. The Shanghai Composite (SHCOMP) stumbled 1.6%, the Hang Seng (HSI) in Hong Kong shed 0.5% and Japan's Nikkei (N225) fell 0.7%.
Economy: New home sales for May rose at a seasonally adjusted annual rate 369,000, according to government data. Sales were expected to come in at 350,000, according to a survey of analysts by Briefing.com, up from 343,000 in the prior month.
Companies: Shares of Parsippany, N.J.-based Watson Pharmaceuticals (WPI) rose on news that U.S. drug regulators gave it permission to produce generic forms of Adderall XR. Until now, Ireland's Shire (SHPGY) has been the only producer of the drug, administered to those diagnosed with attention deficit hyperactivity disorder.
Shares of JC Penny (JCP, Fortune 500) fell 5% amid ongoing worries about the retailer's management. Last week, the company announced that its president was stepping down after less than nine months on the job.
Chesapeake (CHK, Fortune 500) faced continued speculation that the natural gas producer is a take-over target. Shares were down 5%.
Currencies and commodities: The dollar gained strength against the euro and British pound, but fell versus the Japanese yen.
Oil for August delivery fell $1.06 to $78.70 a barrel.
Gold futures for August delivery rose $4.40 to $1,571.30 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 1.62% from 1.67% late Friday.
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