Dow drops 2.3% for the day, gains 9.5% in October

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A sell-off on Monday dented stocks’ big advance for October, as worries about Europe’s debt crisis flared again and the failure of brokerage MF Global Holdings Inc. rattled Wall Street.

The Dow Jones industrial average slumped 276.10 points, or 2.3%, to close at 11,955.01, the largest one-day drop in four weeks.

For October overall the Dow rallied 1,042 points, or 9.5%, the biggest monthly gain since October 2002.

The Standard & Poor’s 500 index fell 31.79 points, or 2.5%, to 1,253.30 on Monday. The S&P jumped 10.8% for the month, its best gain in nearly two decades, as recession worries faded.

Trading volume was relatively moderate Monday, suggesting there was no mad rush for the exits, though selling accelerated near the closing bell.

Many analysts had warned at the end of last week that the market was overdue for a pullback after soaring for most of October. In Wall Street parlance, stocks were “overbought.”

Monday’s headlines brought good excuses to sell. Italian government bond yields rose, raising fresh doubts about Europe’s latest plan to solve its debt crisis.

When European leaders on Thursday announced their new strategy to end the debt nightmare, a key to the plan was to make investors feel confident about buying Italian bonds, thereby driving interest rates down. Instead, yields are rising.

Most European stock markets slid between 2.8% and 3.8% on Monday, after rocketing in the aftermath of the rescue-plan announcement.

MF Global’s failure, though not a total surprise, spooked investors by resurrecting memories of the collapse of Lehman Bros. in September 2008.

Some investors and traders rushed into the usual havens: U.S. Treasury bonds and the dollar. The yield on the 10-year T-note dived to 2.11% from 2.32% on Friday. The dollar rallied against most currencies, helped in part by Japan’s decision to try to beat back the yen from all-time highs.

On Wall Street, the bulls know they have history on their side in the near term -- if you believe that the U.S. economy will keep growing, Europe won’t implode and no other major disaster looms: Since 1950, November and December have been the stock market’s best two-month period of the year, on average, as investors often look ahead to the new year with optimism.

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-- Tom Petruno