By Sweta Singh
(Reuters) - U.S. stocks extended their losses in heavy trading on Monday, adding to a global selloff, after a collapse in Greek bailout talks intensified fears that the country could be the first to exit the euro zone.
All three major indexes fell more than 1 percent on the same day for the first time in more than a month as investors dropped riskier assets such as equities and commodities.
Volatility rose sharply as nine of the 10 main S&P sectors retreated. The only group to rise was utilities, considered a defensive play.
In Europe, the blue-chip Euro STOXX 50 index suffered its biggest one-day fall since 2011.
The European Central Bank froze funding to Greek banks, forcing Athens to shut banks for a week to keep them from collapsing.
"A week ago, it seemed very likely that we were close to having a resolution, and now all of a sudden we’re waking up to capital controls?" said Leo Grohowski, who oversees about $194 billion in client assets as chief investment officer at BNY Mellon Wealth Management in New York.
"I'm not confident that today reflects all the bad news that could happen. Investors are really bumping up the odds that Greece will exit the euro," Grohowski said.
Greece faces default if it does not repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund on Tuesday.
While the Greek economy is small, and U.S. corporations have limited exposure to the country, investors are concerned about the fallout across Europe if the country exits the euro zone.
A snap Reuters poll of economists and traders found a median 45 percent probability that Greece would leave the euro zone.
In U.S. data, the pending home sales index, issued by the National Association of Realtors, rose to a nine-year high.
Investors have been keeping a close eye on data to see if the U.S. economy has recovered from a slow start at the beginning of the year. The Federal Reserve has said it will raise rates when it sees a sustained rebound in the economy.
A September interest rate hike is "very much in play" if the U.S. economy continues to strengthen, though the Federal Reserve could also wait until December to start tightening policy, New York Fed President William Dudley told the Financial Times in an interview.
The CBOE Volatility index, a measure of the premium traders are willing to pay for protection against a drop in the S&P 500, jumped as much as 23.18 percent to 17.26 points, its highest in more than three months.
At 12:06 p.m. EDT (1606 GMT) the Dow Jones industrial average was down 198.65 points, or 1.11 percent, at 17,748.03, the S&P 500 was down 23.56 points, or 1.12 percent, at 2,077.93 and the Nasdaq Composite was down 66.14 points, or 1.3 percent, at 5,014.37.
The financials moved into negative territory for the year and weighed down the S&P 500 with a 1.5 percent decline. Bank of America, down 2.5 percent, was the biggest drag on the financial index.
Goldman Sachs weighed the most on the Dow with a 1.8 percent decline.
Seres Therapeutics' shares fell 19 percent to $41.60 after an 86 percent rise in its market debut on Friday, making it the biggest loser on the Nasdaq.
Ameriana Bancorp shares rose 36 percent at $21.32 after First Merchants and Ameriana agreed to merge in a $68.8 million deal. The stock was the biggest percentage gainer on the Nasdaq.
Assured Guaranty and MBIA Inc fell more than 12 percent after BTIG downgraded the insurers on concerns over Puerto Rico's debts.
Vitae Pharmaceuticals shares fall 15.4 percent to $12.85 after company said its drug to treat type 2 diabetes in overweight patients did not meet its main goal in a mid-stage study testing it as an add-on therapy.
Declining issues outnumbered advancers on the NYSE by 2,570 to 476. On the Nasdaq, 2,152 issues fell and 551 advanced.
The S&P 500 index showed two new 52-week highs and 19 new lows, while the Nasdaq recorded 39 new highs and 82 new lows.
(Additional reporting by Siddharth Cavale in Bengaluru; Editing by Saumyadeb Chakrabarty)