NEW YORK -- July doesn't look so promising anymore.

The European debt crisis appears to be widening, with concerns about government debt defaults spreading beyond Greece to much larger countries like Italy and Spain.

If that happens, companies that do business internationally could see their revenue and profits decline as European countries and companies curtail purchases. What's more, a widespread financial crisis could cause a credit crunch in Europe and elsewhere.

The concerns sent stocks down Monday.

Italy and Spain, Europe's third and fourth largest economies, have seen bond yields rise sharply, the latest sign that investors are less willing to hold the debt of those countries.

Italy's largest banks, UniCredit SpA and Intesa, fell sharply on European exchanges. Some investors believe several of Italy's and Spain's financial institutions might not pass an upcoming stress-test for European banks.

"What the European Union is trying to do is keep the problem contained at a sovereign level and not have the infection spread to the banking system," said Jack Ablin, chief investment officer at Harris Private Bank. "To see a bank drop that much that fast suggests there may be a breach."

That has led to fears in Europe and elsewhere that the aid from international lenders may not be enough to stop a broad deterioration of the European economy.

The S&P fell broadly, led by financial companies. Financial stocks in the index fell 2.8 percent as bank stocks sank. Investment manager Janus Capital Group fared worst, falling 6.8 percent to $9.16.

Citigroup led banks down, declining 5.3 percent to $39.79. If Europe's debt crisis continues to spread, bank lending could seize up. Banks are also expected to report weak earnings beginning later this week.

Of the 500 companies in the S&P index, 492 fell.

The euro fell against the dollar and U.S. government bond prices rose. The euro fell below $1.40 for the first time since May 23 and hit a record low against the Swiss franc. The yield on the 10-year Treasury note fell to 2.95 percent from 3.02 percent late Friday. Bond yields fall when their prices rise.

Markets seemed to be recovering during the last half of June. The last week of the month, the Dow had its best week in two years after several positive reports on manufacturing and consumer spending. All three major indexes were close to their previous highs for the year, reached April 29.

But the run-up just gave markets more room to fall, said Ralph Fogel, an investment strategist at Fogel Neal Partners in New York.

"When markets are at their bottom, they don't listen to bad news. But because we're at the top end, they listen," said Fogel. The broadening of Europe's debt troubles follows disappointing U.S. employment news and a setback in negotiations over the country's borrowing limit.

The government reported Friday that employers pulled back sharply on hiring in June, compounding fears that the U.S. economy was in even worse shape than previously thought. The unemployment rate rose to 9.2 percent.

Weekend budget talks between Republicans and Democrats also stalled, raising the possibility that lawmakers might not reach an agreement on raising the country's debt limit before an Aug. 2 deadline.

President Barack Obama said he wouldn't sign a short-term extension to the limit.

"Markets don't like when they don't know what's going on," said Fogel. "They don't appreciate politics."

News Corp. fell 7.6 percent on Monday, the most of any company in the S&P 500, as its phone-hacking scandal threatened the approval of its proposed takeover of British Sky Broadcasting, a highly profitable satellite TV company in Britain.

The deal will now be reviewed by British competition authorities, which will put off a final decision for several months.

Wells Fargo fell 2.6 percent after the bank offered to settle for $125 million with pension funds that accused it of not warning investors about risky mortgage-backed securities.

Insurer American International Group fell 3.6 percent after saying it would fire one or more of the banks it used for its recent public stock offering when it sells more stock this year.