Stocks Driven Lower by Europe's Uncertainty

HSBC Holdings said Monday though that the preliminary HSBC China Manufacturing Purchasing Managers Index measuring manufacturing activity throughout the world's second-largest economy increased to a two-month high of 49.1 in April compared with a final reading of 48.3 in March. Still, any reading below 50 indicates contraction.

London's FTSE closed down 1.9% and Germany's DAX fell 3.4%. In East Asia, Japan's Nikkei Average settled 0.2% lower and Hong Kong's Hang Seng index finished down 1.8%.

The U.S. economic calendar was empty on Monday. Investors will look for more direction on where the economy is headed when the Federal Reserve concludes its latest two-day policy meeting on Wednesday.

Economists expect the central bank to stay committed to low rates till 2014, with Chairman Ben Bernanke likely leaving the door open for further quantitative easing. Bernanke will also hold his quarterly news conference on Wednesday.

In corporate news, Nestle agreed to acquire Pfizer's (PFE) infant nutrition business for $11.85 billion. Pfizer, the drugmaker, had put the unit up for sale in July. The company has been selling non-core operations as it focus on new drug development. Pfizer shares dipped 0.8% to $22.38.

Oil major ConocoPhillips(COP) reported first-quarter earnings of $2.9 billion, down from $3 billion last year as its oil production declined following the halting of operations in China due to oil leaks as well as assets sales.

Excluding $330 million of special items, first-quarter 2012 adjusted earnings were $2.6 billion, or $2.02 a share, below the $2.08 a share expected by analysts. The company plans to spin off its refining business next week. The stock lost 0.7% to $72.33.

Broadly speaking, Cote of ING says that the big story should be U.S. corporate earnings despite a very volatile environment, and he felt investors should not read too much into the European situation. "The fundamentals are intact especially in the U.S.," he explains. "Earnings are having a blockbuster quarter ... an 82% surprise ratio is extraordinary."

June oil futures slipped 77 cents to settle at $103.11 a barrel, while June gold futures lost $10.2 to settle at $1,632.60 an ounce.

The benchmark 10-year Treasury was gaining 8/32, diluting the yield to 1.938%, while the U.S. dollar index was up 0.3%.