NEW YORK -- Stocks closed out their worst month in more than a year by sliding again Friday on more unsettling news about Europe.
The Dow Jones industrials skidded 122 points after Fitch Ratings gave Spain the second downgrade of its credit rating in a month.
The rating agency's action was another reminder to traders of the long-term economic problems still facing several European countries, and perhaps the rest of the continent and the global economy as well.
May was difficult as persistent and intensifying worries about Europe's debt problems sent the Dow down 7.9 percent and the broader Standard & Poor's 500 index down 8.2 percent.
Both indexes had their worst monthly performance since February 2009, the month before stocks began their recovery from 12-year lows. The Dow lost nearly 872 points, its biggest point drop ever for May.
The last trading day of May fit the pattern of the rest of the month. Stocks alternately plunged and recovered, then dropped late in the day as investors facing a three-day holiday weekend decided to play it safe and sell.
Fitch cut Spain's rating by one notch, saying the country's plan to cut its budget likely will slow economic growth. Mounting debt forced Spain, among other European countries, to recently impose austerity measures to try to contain its rising deficit.
The rating agency also cited the recent bailout of a regional bank by Spain's central bank as a sign that the country's economic recovery will lag. Earlier this month, Standard & Poor's lowered its rating of Spain's debt. Greece and Portugal also have suffered downgrades.
Stocks already were down before the news about Spain broke in the early afternoon.
"People are worried about Europe and we're seeing a knee-jerk reaction, particularly ahead of a long weekend," said Joe Heider, a principal at Rehmann in Cleveland. He said traders won't want to be holding some investments, because U.S. markets are closed Monday while European ones are open.
Heider noted that the new rating, just one short of Fitch's highest, is still quite good. It was more the timing of the cut before the holiday weekend than the actual downgrade itself that surprised investors, he said.
The market's reaction was an example of how quick investors have been to sell during May. Although the day didn't see the huge swings stocks had earlier this month, there was still plenty of emotion.
The biggest shock of the month came May 6, when the Dow took a dive of 1,000 points in less than 30 minutes before recovering most of its losses on the same day.
Greece, the most troubled European country, has received a bailout, and several other countries also are cutting their spending, but investors fear that the region's debt problems can't be contained.
They're also worried that austerity measures will stifle economic growth, and that Europe's slowdown will become the world's slowdown.
The market's drop this month has given it what's called a "correction." That's considered a drop of 10 percent or more from a recent high.
The S&P 500, the index most watched by market pros, ended May down 10.5 percent from its high for the year, reached April 23. The Dow is down 9.5 percent from its 2010 high, reached April 26.
The Dow has regained some ground from the low of 9,974.45 it closed at on Wednesday.
With investors pulling out of stocks, bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.29 percent from 3.36 percent late Thursday.
The anxiety about Europe sent interest rates tumbling in May. Investors were buying U.S. government debt because of its reputation for safety. The yield on the 10-year Treasury note rose to around 3.70 percent at the beginning of the month, but then fell to a 2010 low of 3.07 percent this week.
Because mortgage rates are tied to that note, mortgage rates fell to 4.78 percent, their lowest level since December when they touched a record low of 4.71 percent.
However, corporate borrowing rates rose, particularly junk bond rates, as investors grew uneasy about company bonds. Barclays Capital's index that tracks high-yield U.S. corporate debt fell nearly 4 percent in May.
The problems in Europe led investors to ignore continuing signs of improvement in the U.S. economy during May. Investors' fear is that forced cutbacks in government spending in Europe in the coming months will curb the continent's economic growth, and in turn, the U.S. recovery.
Next week will bring a series of economic reports that will test the market, including the Labor Department's May employment report and readings on manufacturing, consumer spending and housing.
If there are any signs that the U.S. economy is being affected by news of Europe's problems -- for example, if consumers seemed to be spending less -- investors are likely to start selling again. And if the jobs report is disappointing, the market also is likely to suffer.
"This month was damaging to the psychology of investors, so consumption may taper in the near term," said Jamie Cox, managing director at Harris Financial Group in Richmond.
Cox said consumers are more tentative after last year's market drop and recession, so they are more likely to cut back quickly at any signs of economic weakness.
Investors also are more likely to sell stocks at the first sign of a pullback, he said.