The Standard & Poor's 500 index fell 12.14 points to 1,350.52. The Nasdaq composite index dropped 35.15 points 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."
The selling was widespread. All 10 industry groups within the S&P 500 were down, with materials and health-care companies off more than 1 percent. Including Friday's drop, the Dow is down 222 points, the biggest back-to-back drop in more than a month.
Adding to the jitters over Europe, a Chinese central bank adviser forecast that China's economic growth could slow from its second-quarter rate of 7.6 percent, which was already the slowest in three years.
Bank stocks, which tend to take a hit when fear flares in Europe, were among the biggest losers. Citigroup Inc. stock dropped 53 cents, or 2 percent, to $25.34.
There were also signs that a global economic slowdown is hitting U.S. companies that rode out the anemic recovery well by selling more abroad. Now, they can't increase those sales as fast as before, and what they do sell has fallen in value as foreign currencies have weakened against the dollar. That's because U.S. companies must translate foreign currency earnings into dollars when reporting to investors, and weaker foreign currencies fetch fewer dollars.
While global sales at McDonald's restaurants open at least a year rose 3.7 percent, for instance, profits slid by about the same rate due to currency exchange. McDonald's generates about two-thirds of its revenue outside the United States.
Stock in the world's largest hamburger chain slid $2.64, or 2.9 percent, to $88.94 after the company fell short of most Wall Street expectations for both net income and revenue.
Hasbro Inc. is also getting hurt by currency trading. If not for the surge in the dollar, its international revenue in the second quarter would have risen 5 percent, instead of falling 4 percent, the toy maker said Monday. Still, the company beat analyst estimates of net income, thanks partly to cost cutting.
Stock in Hasbro, whose products include Monopoly and Scrabble, rose $1.35, or 4 percent, to $35.19.
In other stock news:
RailAmerica Inc., a short-line railroad operator, rose $2.44, or nearly 10 percent, to $27.25 after announcing it planned to sell itself another short-line operator, Genesee & Wyoming, for $1.39 billion in cash.
Peet's Coffee and Tea surged 28 percent to $73.05 after announcing a sale to Joh A. Benckiser, a privately held consumer goods company in Germany.