Dow drops sharply on Spain debt fears

Fear that Spain may need a bailout sent its borrowing costs soaring, the euro to a two-year low against the dollar and stocks around the world tumbling as investors pulled back from risk Monday.

The Dow Jones industrial average fell 239 points but ended down 101.11 at 12,721.46. Yields for U.S. government bonds sank to record lows as traders sought the safety of American debt.

Borrowing costs rose sharply for Spain and Italy after news that the Spanish economy contracted by 0.4 percent in the second quarter. Falling economic output makes it more difficult for Spain to deal with its debts.

The Standard & Poor's 500 index fell 0.89 percent to 1,350.52; the Nasdaq composite index fell 1.2 percent to 2,890.15.

"Increases in Spanish borrowing costs have brought back questions about the health of Europe," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. "That's driven a flight to safety."

All 10 industry groups in the S&P 500 were down. Including Friday's drop, the Dow is down 222 points, the biggest back-to-back drop in more than a month.

Investors are also worried Greece might get cut off from emergency loans it needs to avoid default if international creditors see little progress Tuesday in cutting its budget and in meeting other conditions.

Adding to the jitters, a Chinese central bank adviser forecast China's economic growth could slow from its second-quarter rate of 7.6 percent, which was already the slowest in three years.