The Dow Jones industrial average lost 276 points Monday but still had its best month since October 2002. The Standard & Poor's 500 index had its best month since December 1991. The main reason for the rally was progress in Europe toward containing that region's debt crisis.
The big breakthrough came early Thursday of last week, when European leaders reached an agreement aimed at shoring up the region's banks and preventing a debt crunch in Greece from bringing down Europe's financial system.
But a lack of many key details in the plan has made investors uneasy again. And Monday, fresh reminders of how the Europe crisis can affect U.S. financial institutions helped bring the market lower.
Bank stocks fell sharply after the brokerage MF Global filed for bankruptcy protection. Last week, the company's debt was downgraded to junk status by ratings agencies concerned about its large holdings of European government debt. The company is headed by former New Jersey Gov. and Goldman Sachs chairman Jon Corzine. Morgan Stanley slumped 8.7 percent, Citigroup Inc. fell 7.5 percent.
The Dow fell 276.10 points, or 2.3 percent, to close at 11,955.01. The Dow closed above 12,000 last Thursday and Friday but prior to that it hadn't close above 12,000 since Aug. 1.
The S&P 500 index fell 32, or 2.5 percent, to 1,253.30. Materials and energy companies fell the most. The Nasdaq composite index fell 53, or 1.9 percent, to 2,684.
The Organization for Economic Cooperation and Development warned Monday that European economies will see a "marked slowdown" next year. The organization called on the European Union to provide more information on how it plans to stem the debt crisis.
October has earned a reputation as a famously bad month for stocks. The October 1929 crash divided the roaring 1920s from the Great Depression of the 1930s. It's the month that has given the market two black eyes: Black Tuesday in 1929 and Black Monday in 1987.
This October started off on a sour note when the Dow and S&P 500 hit their low point for the year Oct. 3. But the market has soared since then, largely on hopes that Europe was finally taking decisive steps to prevent Greece's debt crisis from bringing down European banks that hold Greek government bonds. The Dow rose 9.5 percent for the month, the S&P 10.8 percent.
"It's a rally off what was a very pessimistic view of the global economy," said Todd Henry, an emerging-market equity specialist at T. Rowe Price. "Does it have legs? I think that's yet to be seen."
Investors were relieved when European leaders made progress in tackling the region's debt crisis in recent weeks. Worries that the U.S. might slip into a recession have faded, and many big U.S. companies like McDonald's Corp. have reported stronger profits for the third quarter. More than three-quarters of U.S. companies in the S&P 500 that have reported results so far had earnings that beat analysts' expectations, according to the financial data provider FactSet.
The European debt crisis is still far from fixed. One troubling sign is that borrowing costs for Italy and Spain have increased, a signal that traders remain worried about their ability to pay their debts.
Five stocks fell for every one that rose on the New York Stock Exchange. Volume was average at 4.2 billion shares.