Markets close down despite late rally

Pessimism about Greece's financial future returned to the financial markets Monday. Stocks fell sharply as investors once again doubted that the country will be able to avoid a default on its debt.

The Dow Jones industrial average dropped about 200 points at opening and traded in that range until the last hour when it recovered about half.

It closed down 108.1, or 1 percent, at 11,401. The Standard & Poor's 500 index closed off 12 points, or 1 percent, to 1,204.1. The Nasdaq composite closed down 9.5 points, or 0.40 percent, to 2,612.8.

Investors fear that Greece won't be able to convince lenders that it can pay its debts -- and that it won't get the money it needs to avoid a default on debts that must be paid next month.

Investors have been sensitive to each piece of news that emerges from Europe, and that has helped feed the volatility in stocks the past few months.

"After every meeting in Europe there's a spin put on it -- either 'this was good and a solution's really soon,' or someone looks the wrong way and the media says there's no solution," said Rob Lutts, president and chief investment officer of Boston-based Cabot Money Management.

If Greece were to default on its debt, other European countries with heavy debt would likely be judged less creditworthy and have difficulty borrowing money. There are concerns about a lending crisis similar to what the world saw in 2008.

Investors also appeared pessimistic about a Federal Reserve policy decision expected Wednesday. Some economists believe that since the Fed decided to hold a two-day meeting instead of the originally planned one-day session, that it was preparing to take steps to stimulate the economy. However, other analysts doubt that the Fed will announce a new plan for the economy.

There is too much disagreement among Fed officials about monetary policy for a decision to right now, said Ralph Fogel, head of investment strategy at Fogel Neale Partners in New York. "They'll have to let it play out at least a little while longer, and I think they'll wait until November," Fogel said.