NEW YORK (AP) -- A warning that Moody's Investors Service will review all the credit ratings of all European nations doused investors' optimism about last week's fiscal pact and sent stocks and other risky assets plunging Monday.

The Dow Jones industrial average dropped 222 points in midday trading. The euro fell more than 1 percent against the dollar and the yields on Italian government bonds rose sharply as investors became more nervous about that nation's debt burden. European stock indexes closed sharply lower.

Moody's said last week's summit of European leaders produced "few new measures" and that Europe remains in a "critical and volatile stage."

The region remains "prone to further shocks and the cohesion of the euro under continued threat," Moody's said. As a result, the agency will review the creditworthiness of all European countries in the first three months of 2012.

Moody's noted that the pact does not address Europe's immediate problem: the crushing debt loads of some nations and their rising borrowing costs.

The agreement "kicks off a process that has a chance of solving the next crisis, not this one," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "The problem is the changes they've agreed to go toward solving the root of current problems 12 months from now."

U.S. stocks fell broadly, with declines for all 30 stocks in the Dow Jones industrial average and all 10 industry groups in the Standard & Poor's 500 index.

The Dow fell 222 points, or 1.8 percent, to 11,962 shortly before noon Eastern time. Intel Corp. fell 5.4 percent after the chipmaker said a shortage of hard drives will limit shipments, pushing its fourth-quarter revenue outlook far below what Wall Street had expected.

The Standard & Poor's 500 index fell 26 points, or 2.1 percent, to 1,229. The Nasdaq composite index dropped 51 points, or 1.9 percent, to 2,595.

Financial stocks fell sharply on fears that big banks could be damaged by the turmoil in the European financial system. Bank of America Corp. fell 5.2 percent. JPMorgan Chase & Co. lost 3.7 percent, Morgan Stanley 6.2 percent.

The warning from Moody's helped deflate optimism about last week's pact, which called for tougher fiscal discipline in countries the euro and greater oversight of national budgets by a central authority.

The agreement does not address the heavy debt loads of many nations and their rising borrowing costs. Greece, Portugal and Ireland have had to accept bailouts. Italy and Spain are teetering because investors are demanding higher interest rates on bonds issued by those governments, which increases borrowing costs for those countries.

The yield on the benchmark Italian 10-year bond rose to 6.53 percent. Greece and Portugal were forced to seek bailouts from their creditors when their bond yields approached 7 percent.

Stocks in Italy led European markets lower.

Also among the top U.S. corporate movers:

-- Endo Pharmaceuticals jumped 6.1 percent after federal regulators approved a new form of one of its pain medications, extending its patent rights over the drug.

-- Diamond Foods Inc. plunged 19.9 percent after reports of an investigation of its payments to walnut farmers. Lawsuits already have been filed, and more are expected.

-- Vulcan Materials Co. shot up 19.2 percent, the most in the S&P 500, after Martin Marietta Materials Inc. made an unsolicited bid to buy the company for $4.6 billion in stock. Martin Marietta rose 6.2 percent.

Copyright 2011 The AP.

Recommended for you