WASHINGTON – The stock market has had an impressive January. The staid companies that make up the Dow Jones industrial average have gained 4 percent in three weeks, and the broader market has done even better.

But the Nasdaq composite — a collection of technology stocks whose dot-com heyday was more than a decade ago — has left them both in the dust.

That’s no surprise when you consider tech stocks took a licking last year. Tech companies tend to carry more risk — a problem for the Nasdaq during last year’s market gyrations. As investors regain confidence in the economy, riskier plays are doing well.

But experts say the Nasdaq’s gains reflect long-term currents that could lift tech stocks through 2012 and beyond. Many companies put off replacing worn-out technology during the recession. To compete and survive, they need to invest in tech.

There’s also a growing global market for technology as more nations try to reduce labor costs by automating everything from factories to cash registers.

And the biggest tech companies face less competition these days when they try to acquire smaller companies. Many of their mid-sized rivals for those deals were weeded out after the dot-com bust and the financial crisis.

In the market for mergers and acquisitions, established players like IBM and Oracle can be picky about buying only those companies that will increase their earnings — and probably their stock prices.

In other words, it’s not all about Microsoft-style titans and trendy social media companies like LinkedIn and Zynga. The Nasdaq contains more than 3,000 companies, many of them relative startups compared with the companies in the Standard & Poor’s 500 index.

For the year — just 13 trading days old — the Nasdaq composite is up 7 percent, compared with 4.6 percent for the S&P 500 and 4.1 percent for the Dow.

“It looks like it’s going to be their year, or at least their month,” says Michael Vogelzang, chief investment officer at Boston Advisors LLC.

The Nasdaq sank 1.8 percent last year, while the Dow rose 5.5 percent and the S&P was flat. That left tech stocks relatively cheap, giving them more space to rise as the broader market rallied. Oracle is up 11.9 percent this year, Microsoft 14.5 percent.

Vogelzang and others say the tech rally has further to go.

“If you want to make your company more productive, you have to turn to the world of technology for that,” says Kim Caughey Forrest, senior analyst with Fort Pitt Capital Group.

She expects the S&P 500′s tech sector to outperform the broader market because of strong demand from U.S. companies, developing nations such as China and even cash-strapped European governments. As China’s banking system exploded to serve a growing middle class, banks there spent big on IBM technology, she noted.

“Nobody questions whether they need the latest and greatest technology anymore. They know they need to keep up their technology spending,” says Eric Gebaide, managing director of Innovation Advisors, a tech-focused investment bank and strategic advisory firm.

Gebaide and others mentioned many companies’ efforts to move their computing and data storage off-site — trends known as “cloud computing” and “virtualization.” Long-distance computing is cheaper, but it requires technology.

But why are tech stocks rallying now? The cloud computing transition has been under way for years, and spending by companies has driven much of the U.S. recovery since the economy emerged from recession in June 2009.

It’s all about the investment cycle, says Jack Ablin, chief investment officer with Harris Private Bank. He says investors are finally willing to “flex their speculative muscles in a market that isn’t falling apart in the way they feared last year.”

Last year, some of the best-performing stocks were consumer staples and utilities — lower-risk industries where demand is consistent even the economy is slow. This year, utilities in the S&P are down 3.7 percent, while tech companies are up 6 percent.

The move out of so-called defensive stocks, the ones you want to own in a slow economy, is a sign that investors are willing to embrace risk again.

“You’re getting this big market rotation,” Vogelzang says. “People made money last year in the boring, stable industries, and they’re saying, `Hey, I better get on this economy train while I can.’”

Tech companies learned hard lessons from the dot-com bust of the early 2000s and the 2008 financial crisis, says Gebaide of Innovation Advisors. They hold more cash than most types of companies and carry less debt. That leaves them less vulnerable to bankruptcy or a loss of investor confidence.

Given its twice-stung discipline, tech is positioned to drive the economy — “perhaps the best it has been as a sector in the past 20 years,” Gebaide says.

The biggest threat to the industry, Gebaide says, is a slowdown in the early investment that helps startups grow into viable companies. Those early dollars used to offer massive returns to savvy investors when a good pick went public.

Today, the upside for venture capitalists is limited because far fewer companies are going public in big stock offerings. The bar is much higher after dot-com era debacles like Pets.com. Before underwriting a deal or buying chunks of stock, banks and investors want to see millions in annual revenue and established customer bases. It’s tough for younger tech companies to meet those standards.

Peter Falvey, managing director of Morgan Keegan Technology Group, says there’s plenty of capital, entrepreneurship and good ideas to keep companies’ bottom lines — and stock prices — rising.

Falvey’s group specializes in tech mergers and acquisitions — the kinds of deals that allow IBM or Oracle to bring a small competitor’s product to a wider audience and add to their own earnings. Last year was the best for M&A in his group’s 11-year history, and this year’s deal pipeline already is stronger than last year’s was at this time, he says.

A company like IBM “has huge amounts of capital and a global customer base, plus complete hardware-software services,” Falvey says. “Once you put a small company into that machine, IBM can do really well with it.”

The industry’s earlier downturns also helped big companies by weeding out smaller players. The number of publicly traded tech companies has decreased by a third since 2000, Gebaide says. Now the big dogs can pick and choose more carefully, acquiring only businesses that are almost certain to increase their profits.

To be sure, high-tech companies are higher-risk investments, and they could lose value quickly if the market tanks because of a debt catastrophe in Europe or something unforeseen.

“People love tech until we get an economic shock, or negative economic statistics start to come out,” Vogelzang says. “Then all of a sudden, people will say, `Whoa, I need to go buy some utilities again.”

But investors should take tech’s success at this stage as a promising sign, says Ryan Detrick, senior technical strategist with Schaeffer’s Investment Research. He says higher-risk bets like tech stocks tend to rise as the market enters a phase of long-term growth.

Housing, tech and small-company stocks all have risen faster than broad indexes since October, Detrick says. Those sectors are sensitive to improving economic data, he says.

“When you start to see tech taking charge, that’s definitely a potential step in the right direction for future gains, potentially for the whole year,” Detrick says. “Those are the sectors you want to see lead a bull market.”

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Follow Daniel Wagner at www.twitter.com/wagnerreports.

GOING NOWHERE: Stocks barely moved for the second day in a row. Investors at first appeared worried about Europe, and stocks fell in the morning. But by afternoon they were back around break-even, with the Nasdaq posting a gain.

BY THE NUMBERS: The Dow Jones industrial average had a microscopic decline of nearly 3 points, to 12,415. The Standard & Poors 500 rose 4 points to 1,281. The Nasdaq rose 22 points to 2,670.

WHAT’S NEXT: Investors will be closely watching the Labor Department’s employment data, due before markets open on Friday.

NEW YORK – The stock market got a big jump on a better year.

After a flat 2011, stocks rose sharply Tuesday in the first trading of 2012 after investors returned from the holiday and found encouraging economic reports from the United States and around the world.

The Dow Jones industrial average rose 179.82 points, or 1.4 percent, to 12,397.38, its highest close in more than five months.

The Standard & Poor’s 500 index, a broader gauge than the Dow, finished up almost 20 points at 1,277. The S&P finished 2011 almost exactly where it started — down a sliver, 0.04 of a point.

The market may have gotten an extra boost from what’s known as the January effect: Investors sell stocks at the end of the year to lock in losses for tax purposes, then come back in January and buy stocks again.

The effect could be more pronounced this year because the stock market was so volatile in 2011 and more investors had losses to take, said Sam Stovall, chief equity strategist at Standard & Poor’s Capital IQ.

Money managers also usually get a fresh infusion of cash at the beginning of the year because workers who maxed out their contributions to retirement accounts well before the previous year ended start contributing again.

These investors are back hunting for bargains, he said: “Investors are a lot like dieters and look to January as a new beginning.”

January is a fairly good predictor of the year for U.S. stocks. Only seven times since 1950 has January turned out to be a “major error” in predicting the year to come, according to the Stock Trader’s Almanac.

In other words, whichever direction the market has gone in January, the rest of the year has usually followed.

The “major errors” are usually extraordinary events, the almanac points out. In 2001, for example, the S&P 500 rose 3.5 percent in January, but the market was rocked by the Sept. 11 attacks and finished the year down 13 percent.

The first day of the year is less useful for fortune-telling than the first month. If you were to bet on whether the market would finish the year up or down based on how it performed the first day, you would be right only about half the time.

And there’s no special power to January. A strong market in any single month makes it more likely that the market will be higher over the 12 months to come, Dan Greenhaus, chief global strategist at the brokerage BTIG, pointed out in a note to clients.

“As goes any month, so goes any 12-month period,” he said. “This is not the exclusive province of January.”

Predictive ability aside, the Dow’s 179-point gain was its third-biggest for the first trading day of the year and its biggest gain on the first day since 2009, when the Dow climbed 258 points.

Tuesday was also the fourth time in a row the market rose on opening day. On Jan. 3, 2011, on its way to flat-lining for the year, the S&P rose 14 points.

Bank stocks and materials and industrial companies posted the largest gains. Alcoa, which produces aluminum, rose 6.7 percent, JPMorgan Chase rose 5.2 percent, and Bank of America rose 4.3 percent, the biggest winners among the 30 stocks in the Dow.

The market’s gains were broad. All but four of the Dow 30 finished higher. Of the 10 categories of stocks in the S&P 500 index, one, utilities, finished lower. Utilities are traditionally conservative stocks to own.

Investors seized on the latest signs of strength in the U.S. economy: Manufacturing expanded in December at the fastest rate in six months, and construction spending rose in November as builders spent more on single-family homes, apartments and remodeling projects.

There was also hope from Europe’s largest economy, Germany, which reported that the average number of people unemployed there last year was the lowest in two decades. Germany has an unemployment rate of 6.6 percent, compared with 8.6 percent in the United States.

And a Chinese manufacturing index rose in December, reversing a November slide and raising hopes that China’s economic slowdown is under control.

The economic reports overshadowed, at least for a day, concerns in the global markets about the European debt crisis, which will probably be the main catalyst for markets in the weeks ahead.

Earlier Tuesday, the government of debt-crippled Greece warned that it would have to ditch the euro currency if the details of a second international bailout worth $169 billion can’t be worked out.

Investors have been afraid that a Greek exit from the euro currency union would further disrupt the Greek economy and cause heavy losses for European banks that hold Greek government debt, perhaps triggering a global financial crisis.

The second Greek bailout was approved last October, but Greece still has to persuade its creditors, including banks and investment firms, to take steep losses on their holdings of Greek debt.

Greece also says more tax increases and spending cuts may be required. A spokesman for the Greek government, Pantelis Kapsis, said negotiations in the next three or four months with international debt monitors will “determine everything.”

The euro rose to $1.3056 from $1.2929 late Monday. Last Thursday, it hit a 15-month low of $1.2857 after an Italian bond auction disappointed investors. On Tuesday, the better economic data had investors more willing to buy riskier currencies.

The price of oil rose $4.13 to $102.96 per barrel in its first trading of 2012. Tensions grew over key Persian Gulf oil shipments after Iran warned the United States to stay out of the strategically important Strait of Hormuz waterway.

The dollar and Treasury prices fell as investors shed low-risk assets. The yield on the U.S. government’s 10-year Treasury note, which moves in the opposite direction from its price, rose to 1.95 percent from 1.88 percent late Friday.

Gold rose 2.2 percent. In other stock trading, the Nasdaq closed up 43.57, or 1.7 percent, at 2,648.72.

U.S. investors were also reacting to news they had missed out on during the holidays. The markets were open last week, but trading volume was only about half its normal level.

• Last Friday, a federal court delayed the implementation of new air-pollution regulations. So coal stocks did well Tuesday: Peabody Energy Corp. rose over 9 percent and James River Coal Co. soared close to 11 percent, while Alpha Natural Resources Inc. gained 8 percent.

• Last Thursday, a JPMorgan analyst told clients that two wireless companies, Leap Wireless International Inc. and MetroPCS Communications Inc., could be targeted by AT&T or T-Mobile for takeovers. MetroPCS rose 8 percent Tuesday, and Leap rose over 6 percent.

In other corporate news:

• Chesapeake Energy Corp. rose almost 6 percent after the energy company sold a part of its Ohio oil and gas business to a unit of French energy company Total SA for $2.32 billion.

• Rambus Inc. jumped 7 percent after the technology licensing company raised its fourth-quarter revenue forecast to $83 million from an earlier range of $66 million to $71 million.

NEW YORK – The stock market got a big jump on beating last year’s flat performance.

Stocks rose sharply Tuesday in the first trading of 2012 as investors returning from the holiday were encouraged by positive economic reports from the United States and around the world.

The Dow Jones industrial average rose more than 260 points in morning trading before sliding back at midday. At 12:15 p.m. EST, the Dow was up 214 points, or 1.7 percent, at 12,430.

The market could be getting an extra boost this year from what is traditionally called the January effect: Investors sell stocks at the end of the year to lock in losses for tax purposes, then come back in January and buy stocks to reinvest.

The effect could be more pronounced this year because the stock market was so volatile in 2011 and more investors were forced to take losses, said Sam Stovall, chief equity strategist at Standard & Poor’s Capital IQ.

Those investors are back hunting for bargains.

“Investors are a lot like dieters and look to January as a new beginning,” Stovall said.

Bank stocks and materials and industrial companies posted the largest gains. Bank of America rose 4.9 percent and JPMorgan Chase 4.6, the biggest winners among the 30 stocks in the Dow.

The gains were broad. All but three of the 30 Dow stocks were higher. Of the 10 major categories of stocks in the S&P 500 index, one, utilities, was lower. Utilities are traditionally conservative stocks to own.

In the latest sign of strength in the U.S. economy, manufacturing expanded in December at the fastest pace in six months. Construction spending jumped in November as builders spent more on single-family homes, apartments and remodeling projects.

Germany, Europe’s largest economy, reported that the average number of people unemployed last year was the lowest in two decades. Germany has an unemployment rate of 6.6 percent, compared with 8.6 percent in the United States.

And a Chinese manufacturing index rose in December, reversing a November slide and raising hopes that China’s economic slowdown is under control.

In other market activity Tuesday, the S&P 500 was up 22 points at 1,279, and the Nasdaq rose 47 to 2,652.

January is a fairly good predictor of the year to come for U.S. stocks. In the past 83 years, the full year has taken its direction from the first month 60 times, according to S&P.

The first day is less useful, though. If you were to bet on whether the market would finish the year up or down based on how it performed the first day, you would be right only about half the time.

Tuesday was on track to be the fourth straight year of market gains on opening day. On Jan. 3, 2011, the S&P rose 14 points, but the market finished the year almost exactly where it began. The S&P 500 ended the year down a sliver — 0.04 of a point.

The economic reports overshadowed, at least for a day, concerns in the global markets about the European debt crisis, which will probably be the main catalyst for markets in the weeks ahead.

Earlier Tuesday, the government of debt-crippled Greece warned that it would have to ditch the euro currency if the details of a second international bailout worth $169 billion can’t be worked out.

Investors have been afraid that a Greek exit from the euro currency union would further disrupt the Greek economy and cause heavy losses for European banks that hold Greek government debt, perhaps triggering a global financial crisis.

The second Greek bailout was approved last October, but Greece still has to persuade its creditors, including banks and investment firms, to take steep losses on their holdings of Greek debt.

Greece also says more tax increases and spending cuts may be required. A spokesman for the Greek government, Pantelis Kapsis, said negotiations in the next three or four months with international debt monitors will “determine everything.”

In other corporate news:

• Chesapeake Energy Corp. rose 4 percent after the energy company sold a part of its Ohio oil and gas business to a unit of French energy company Total SA for $2.32 billion.

• Rambus Inc. jumped 8 percent after the technology licensing company raised its fourth-quarter revenue forecast to $83 million from an earlier range of $66 million to $71 million.

LONDON (Reuters) – European shares made a positive start to the New Year as they extended a two-week rebound in thin trade on Monday, with automotive stocks and euro zone banks leading the charge.

At 1216 GMT the FTSEurofirst 300 index of European shares was up 0.6 percent at 1006.07, breaking above the full retracement level of the December7-Dec 19 fall.

Volumes on the index registered a slight pick-up from last week's lows but remained thin at 37 percent of the 90-day average as the British and United States markets were closed.

With many fund managers still on holiday, equity markets were driven by short-term trades into sectors enjoying technical rebounds, such as automotives (.SXAP), euro zone banks (.SX7E) utilities (.SX4P) and insurers (.SXIP).

"People are looking for underperformers and rotating sectors every few days," a trader said.

"They're scared and keep their finger ready: if the market inches up, they buy, if it moves down, they don't."

Auto stocks were the top performers as they gained 1.9 percent after breaking above their 200-day moving average at the open, with tire makers Continental (CONG.DE) and Nokian Renkaat (NRE1V.HE) rising 4.7 percent and 2.4 percent, respectively.

The insurance and utilities sectors also outperformed as they broke above the 50 percent retracement of the November sell-off.

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Asset returns in 2011: http://r.reuters.com/suz52s

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EURO ZONE

Euro zone banks rose 1.2 percent after closing above the 38.2 percent Fibonacci retracement level of the November move on Friday.

Natixis argued current valuations on euro zone banks provided a "major buying opportunity," arguing the region's leaders would not allow any default by a large country and the European Central Bank is providing adequate liquidity support to lenders.

"A default by a large euro zone country and/or its withdrawal from the euro is a virtually zero probability event," Natixis said in a note.

"As this event would have catastrophic consequences (on the rest of Europe), there are grounds to think that it will not occur."

The comments came as Greece's central governor warned that exiting the euro would have disastrous consequence for his country and the Greek government reaffirmed its belief that a return to the drachma can be avoided if reforms are implemented.

Natixis also noted euro zone banks have started to reduce their exposure to troubled sovereign debt other than domestic paper, and are working to increase profitability to meet stricter capital requirements.

Around Europe, Germany's Xetra Dax (.GDAXI) and Italy's FTSE Mib outperformed, as they rose 1.9 percent and 1.5 percent respectively, helped by better-than-expected manufacturing data.

Italy's and Germany's PMIs for December were unexpectedly revised up on Friday, while the euro zone reading was kept unchanged at 46.9, pointing to a slowdown in the rate at which the area's manufacturing activity is shrinking.

(Editing by David Cowell)

NEW YORK (Reuters) – Stock index futures were little changed on Friday, the last trading day of 2011, as investors waited until the next year to begin making large bets.

With the S&P 500 on track for a slight gain for the year, many market participants will likely stay on the sidelines on what is typically one of the lowest-volume sessions for the year.

Equities may continue a trend followed for much of 2011, taking a cue from European markets. Mixed results from a recent auction for Italian bonds reignited worries about the region's debt crisis. European shares rose 0.6 percent Friday but were on track for their worst year since 2008. (.EU)

Volume this week has been about half the year's daily average, with many traders away because of the Christmas and New Year's holidays. The anemic action has amplified moves in both directions.

"The volume has the potential to add volatility today, but it looks like this is going to be a quiet day," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York. "There doesn't seem to be any indication that we'll be pushed around or that much will happen, but the volume is something investors need to be mindful of."

Verizon Wireless, a venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L), said it will add a $2 fee for one-time bill payments, raising the ire of consumers.

The only economic indicator on tap is the December ISM New York index, due at 8:30 a.m. EST (1330 GMT)

China's factory activity shrank again December as demand at home and abroad slackened, a purchasing managers survey showed Friday, reinforcing the case for pro-growth policies from Beijing.

Concerns about a hard economic landing in China have been on investor minds throughout 2011 and could linger into next year. Shares in Hong Kong and China had their worst year since 2008

S&P 500 futures rose 2 points and were about even with fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 7 points, and Nasdaq 100 futures rose 2.5 points.

Global markets have been battered this year by Europe's debt crisis, upheaval in the Middle East, a devastating Japanese earthquake and tsunami as well as a struggling U.S. economy. The S&P is up 0.4 percent, while the Dow has gained 6.2 percent as investors sought safety in large-cap dividend -paying names. The Nasdaq is down 1.5 percent.

"Given everything the world went through this year, ending flat is practically a victory for professional investors," Pavlik said.

Volatility was high throughout the year, with the S&P climbing 9 percent at its peak, and dropping 14.5 percent to its bottom. The CBOE Volatility index (.VIX) is up about 28 percent this year.

Financials were the weakest sector as the concerns about global growth threw into doubt the group's ability to grow profits. Bank of America Corp (BAC.N) was the Dow's worst performer, tumbling 59 percent. JPMorgan Chase & Co (JPM.N) slumped 21 percent.

Cabot Oil & Gas Corp (COG.N) was the only S&P component to double in 2011, up 103 percent, followed by another energy name, El Paso Corp (EP.N), which rose 92 percent.

McDonald's Corp (MCD.N) advanced 31 percent, the biggest gainer on the Dow.

U.S. stocks rallied 1 percent on Thursday, moving the S&P 500 back into positive territory for the year on positive signals on the U.S. economy, including strong data on home sales and Midwest factory activity.

(Reporting by Ryan Vlastelica; editing by Jeffrey Benkoe)

NEW YORK (Reuters) – Stocks rose on Thursday, resuming their upward move into year-end, as positive data on the U.S. economy offset concerns about the euro zone.

But the S&P 500 continued to churn around its 200-day moving average, although the index was back in positive territory for 2011 ahead of the last trading day of the year. Scant volume increased the market's volatility.

"The low-volume rally is likely to continue to tomorrow, sort of setting the stage of the first quarter of next year," said Uri Landesman, president of Platinum Partners in New York.

"I am bullish on the beginning of next year because the market has discounted a lot of bad news out of Europe already and technically the market is due for a early bounce."

The Dow Jones industrial average (.DJI) was up 107.17 points, or 0.88 percent, at 12,258.58. The Standard & Poor's 500 Index (.SPX) was up 9.78 points, or 0.78 percent, at 1,259.42. The Nasdaq Composite Index (.IXIC) was up 17.37 points, or 0.67 percent, at 2,607.35.

Italian bond yields, which helped break a five-day rally with a sharp selloff in the last session, eased on Thursday after a debt auction.

Stocks added to gains after the euro erased losses against the dollar, rebounding from a 15-month low in thin trading.

But the yield on 10-year Italian bonds hovered near 7 percent, a level markets see as a danger zone for Italy's government debt.

Pending sales of existing U.S. homes surged to a 1-1/2 year high in November, offering more signs of a tentative housing recovery. That report drove the Dow Jones home builders index (.DJUSHB) up 3.5 percent.

In addition, factory activity continued to grow in the U.S. Midwest in December, as purchasing managers reported rising prices and employment, even though production eased slightly.

Banks were the biggest gainers along with commodity-related sectors that sold off hard on Wednesday. The S&P financial index (.GSPF) rose 1.2 percent, while the capital goods sector (.GSPIC) added 1.1 percent.

Concerns over Europe's sovereign debt crisis resurfaced Wednesday, sparking a 1 percent drop in major indexes. The S&P 500's slim gains for the year were erased and the index pulled back below its 200-day moving average.

This year, the 200-day moving average has been a critical level for the S&P 500 as investors look for a significant break above that level before committing capital. The measure is often used to gauge the market's longer-term strength.

On the down side, initial claims for jobless benefits rose more than expected, giving a mixed labor picture, but investors said the trend was still lower.

Recent economic data, including reports on housing, have been largely positive, contributing to stocks' gains over the past month and the view that economic growth is picking up steam.

"We have seen a pretty encouraging trend in the U.S. economic data over the last two months," said Peter Jankovskis, co-chief investment officer of OakBrook Investments in Lisle, Illinois. "If that trend continues, that will provide good support and perhaps some upward momentum."

The next big test for markets in terms of U.S. economic data will be the December payrolls report at the end of next week.

For the year, the Dow is up 5.8 percent and the S&P 500 is up 0.1 percent, while the Nasdaq is down 1.7 percent.

Amazon.com Inc (AMZN.O) shares fell 0.3 percent to $173.32. Goldman Sachs said the online retailer's sales growth in the current holiday quarter could miss expectations.

Diamond Foods Inc (DMND.O) shares rose 7.2 percent to $31.55 after CNBC reported rumors that high-profile investor David Einhorn may have invested in the company.

Standard & Poor's placed Sears Holdings Corp's (SHLD.O) credit rating on review for a possible downgrade. It said plans to close at least 100 stores may not do much to improve its performance. The stock, down 0.8 percent at $33.05, has lost about one-third of its value over the last three days.

(Reporting By Angela Moon; Editing by Jan Paschal)

NEW YORK – Stocks weakened Wednesday, ending a five-day advance in the S&P 500 index, as new signs of strain emerged in the European banking system. The euro fell to its lowest level against the dollar in nearly a year and Treasurys rallied.

The Dow Jones industrial average lost nearly 140 points. The S&P is now negative for the year again, after barely turning positive on Friday.

The European Central Bank said banks had parked $590.72 billion with it overnight, surpassing the record set only Monday. That means European banks were less willing to take the risk of making short-term loans to each other, opting instead to earn low interest rates from the ECB. The disclosure also hurt the euro, which fell to $1.291, its lowest level against the dollar since January.

The worrying news from the ECB overshadowed two successful auctions of Italian government debt. Italy was able to pay much lower borrowing rates than last month. The strong demand from investors raised hopes that Italy would be able to avoid sinking into a financial crisis, as smaller countries like Greece and Portugal have.

John Merrill, chief investment officer at Tanglewood Wealth Management, said markets would remain vulnerable to flare-ups in Europe’s long-running financial crisis until leaders there come up with more convincing solutions for paying down their enormous debt loads and keeping the 17-nation currency union intact.

“We live in a Band-Aid world,” Merrill said. “Nobody really is addressing underlying issues.”

European leaders agreed at a summit Dec. 9 to forge closer fiscal ties over the long term, but investors are still worried that Greece might default on its debt or be forced to leave the euro bloc. A Greek exit from the currency union would likely cause huge disruptions for the country’s economy and losses for European banks that hold Greek government debt. Investors fear that could cascade into another global financial panic, as happened in 2008 following the collapse of the U.S. investment bank Lehman Brothers.

The Dow Jones industrial average fell 139.94 points, or 1.1 percent, to 12,151.41. Materials and energy companies led the declines. Alcoa Inc. fell 3 percent and Caterpillar Inc. fell 2.4 percent.

With only two more trading days left in the year, markets were thinly populated in a holiday-shortened week. Shares traded on the New York Stock Exchange totaled 2.3 billion, less than half of the usual volume.

The S&P 500 fell 15.79 points, or 1.3 percent, to 1,249.64. The Nasdaq composite declined 35.22 points, or 1.3 percent, to 2,589.98.

The yield on the 10-year Treasury note fell to 1.93 percent from 2 percent late Tuesday as investors moved money into less risky assets.

The Bank of Italy raised $11.8 billion in two bond auctions, reflecting investor approval of the country’s recently passed austerity measures. The yield on Italy’s six-month bill offering was half the interest rate the country paid in a similar auction last month. The yield on the country’s 10-year bond remained dangerously high, however, at 6.93 percent. It had risen to 7 percent Tuesday, a level that is considered unsustainable.

Italy is the euro zone’s third-largest economy and is considered too big to save under the euro zone’s current bailout funds. Investors have grown fearful over the past few months that Italy will find it difficult to pay off its massive debts, which stand at around $2.5 trillion.

The worries were reflected in U.S. bank stocks. Bank of America Corp. fell 3.5 percent, while Regions Financial Corp. fell 2.7 percent.

In other corporate news:

• Sandridge Energy Inc. stock declined 4.4 percent on news that it is selling drilling rights in two states to a Spanish energy company, Repsol YPF.

• Cavium Inc. fell over 1 percent, a day after the chipmaker said its fourth-quarter results will fall below its previous forecast.