NEW YORK (AP) - Stocks turned lower Monday following signs that Italy could be headed for political gridlock, potentially undermining the country's efforts to reform its economy and rekindling the region's debt crisis.
The Dow Jones industrial average was down 74 points, or 0.5 percent, to 13,926 as of 2:18 p.m. EST. The Standard & Poor's 500 fell 10 points, or 0.7 percent, to 1,505 and the Nasdaq composite dropped 14 points, or 0.4 percent, to 3,148.
Stocks had rallied in the early going as exit polls showed that a center-left coalition in Italy that favored economic reforms in the euro region's third-largest economy was leading in the polls. That gain evaporated after another poll showed that the elections could result in a stalemate in the country's legislature.
"The Italian elections have implications for the credit markets," said Quincy Krosby, market strategist at Prudential. "The ultimate worry is that the credit markets start reacting."
Investors sold Italian government bonds and erased most of an early rally in Italy's stock market as the camp led by former premier Silvio Berlusconi appeared more likely to take control of Italy's Senate, threatening the country's reform efforts.
The yield on Italy's 10-year government bond edged up to 4.43 percent from 4.40 percent. The country's benchmark stock index, the FSTE MIB, rose 0.7 percent, giving up an early gain of 4 percent.
Investors worry about the outcome of Italy's election because it could set off another crisis of confidence in the region's shared currency, the euro. Financial markets in both Europe and the U.S. have swooned at the prospect of Italy or Spain being dragged into the region's government debt troubles, which have led to bailouts of Greece, Ireland and Portugal.
On the New York Stock Exchange, Barnes & Noble rose $1.39, or 10 percent, to $14.90 after founder and chairman Leonard Riggio told the bookseller he is going to try to buy the company's retail business. Hertz advanced $1.12 to $19.85, despite posting a fourth-quarter loss, after the rental car company said that pricing improved, volume rose and it cut costs.
The Standard & Poor's 500 had its first weekly decline of the year last week. Investors sent stocks plunging after minutes from the Federal Reserve's latest policy meeting revealed disagreement over how long to keep buying bonds in an effort to boost the economy.
Fed chairman Ben Bernanke will testify before the U.S. Senate's banking committee Tuesday and again before Congress on Wednesday. Investors will watch to see if he gives any further indications about how long the central bank intends to keep providing stimulus to the economy.
Several reports about consumer confidence and the housing market, scheduled to be published Tuesday, will give investors more information about the state of the economy. Optimism that the housing market is maintaining its recovery have helped underpin a rally in stocks this year.
Many analysts say the Fed's bond-buying program and the resulting low interest rates have been a big driver behind this year's stock rally. The Dow has gained 6.3 percent this year and the S&P 500 5.6 percent, pushing both near record levels. The Dow's record close is 14,164, reaching in October 2007 and the S&P closed as high as 1,565 in the same month.
European stocks also advanced, but gave back much of their early gains. Benchmark indexes rose 0.4 percent in France, 1.5 percent in Germany and 0.8 percent in Spain. Britain's index was up just 0.3 percent after Moody's stripped the country late Friday of its triple-A credit rating.
The yield on the U.S. 10-year Treasury note, which moves inversely to its price, fell five basis points to 1.91 percent.
Among other stocks making big moves:
- Southwestern Energy rose 51 cents to $34 after Goldman Sachs added the company to its conviction buy list, saying that the company's shale returns are poised to improve.
- Drugmaker Affymax plunged $14, or 85 percent, to $2.49 after the company recalled its anemia drug following severe allergic reactions and the deaths of some kidney dialysis patients.
-Mead Johnson fell $2.60 to $76.33 after the company said that a new regulation in Hong Kong could affect the company's sales there as well as in mainland China.
(Copyright 2013 by The Associated Press. All Rights Reserved.)