U.S. Stocks Slide

The gains made in this month’s sharp rally have been diminished as U.S. stocks dropped today. Investors were prompted to sell as caution ahead of some key readings on the domestic economy this week.

The S & P 500 declined 17 points, or 1.3%, to 1268, led lower by energy, material and financial stocks. October is the first month the index has gone without two consecutive days of losses since October 2006. The Nasdaq Composite shed 28 points, or 1%, to 2709.The Dow Jones Industrial Average shed 1.2% to 12082, a drop of 148 points in late morning trading. Alcoa ed the blue-chip index lower, falling 4.8%, while Bank of America lost 4.6%.

Last week the Dow rose 3.6% and is up about 12% in October. It is on track to produce the biggest monthly point gain in its history. Stocks have risen all month as investors have applauded Europe’s plan to combat Greece’s debt problems, with measures to expand the bailout fund and recapitalize principal banks in the region. This optimism in the markets is tempered by the complexity of the situation in Europe.

One factor encouraging investors is recent economic data have also indicated that the U.S. economy isn’t poised  for a double-dip recession. Two reports released in the upcoming days will be closely followed by investors: Wednesday the Federal Reserve will release a statement following a meeting of the policy-setting committee, and Friday the government’s October employment report is to be released.

In Europe, the Stoxx Europe 600 was down 1.6% as investors began to question the effectiveness of last week’s plan to resolve the euro-zone’s debt crisis.Confidence was also compromised by concern over the strength of the economy.

Monday the Organization of Economic Development and Cooperation stated that weak growth and high unemployment could persist in advanced economies for two years. While the OECD had previously forecast the euro zone’s gross domestic product to expand by 2% next year, it has revised this estimate to just 0.3%.

The U.S. dollar advanced against the euro and the Swiss franc. The Dollar also rose sharply against the yen as the Bank of Japan intervened to stem the yen’s rise. Oil futures fell below $93 a barrel, while gold futures dipped to about $1,725 an ounce.