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NEW YORK (CNNMoney)
U.S. stocks were modestly lower Monday morning, following a sharp sell-off in Chinese stocks on concerns about a property bubble in the world's second biggest economy.
The Dow Jones industrial average was down 0.3%, while the S&P 500 and the Nasdaq both fell about 0.2%.
Investors have become increasingly convinced that federal spending cuts would go into effect after budget talks in Washington broke down last week.
"Investors have been bracing for this for several weeks," said Carmine Grigoli, chief investment strategist at Mizuho Securities.
While the cuts could be a drag on economic growth, investors believe they are at least a step towards dealing with the nation's fiscal crisis, said Grigoli. "The question is: do the cuts lead to a recession? The answer is no."
Some analysts fear that the $85 billion in cuts, which will not be felt immediately, could take a big bite out of economic growth this year. But many investors are hopeful that lawmakers will eventually replace the arbitrary, across-the-board cuts with something more targeted.
"We persist in hoping that calmer minds will prevail in the days ahead and that a prudent negotiated bipartisan resolution can be arrived at to avoid impediments and challenges that could unnecessarily challenge a hard-earned economic recovery," wrote John Stoltzfus, chief market strategist at Oppenheimer, in a note to clients.
For the moment, investors are more concerned about threats to the global economy.
Chinese stocks tumbled Monday, as the government in Beijing announced new measures to avert a real estate bubble. The Shanghai Composite lost 3.7%, while Hong Kong's Hang Seng declined 1.5%. Japan's Nikkei added 0.4% though.
"There's a lot of hope that China will be able to revive growth," said Grigoli. "So anything disappointing that comes out of that region will definitely be looked at."
In the United States, shares of companies that are exposed to China were among the worst performers. Caterpillar (CAT, Fortune 500), Alcoa (AA, Fortune 500), Boeing (BA, Fortune 500) and United Technologies (UTX, Fortune 500) were all down.
European stock markets dipped as well. Italy has been a concern, after elections last month left the euro area's third biggest economy without clear leadership. Also, the European Central Bank will be releasing its Governing Council's monetary policy decisions on Thursday.
Investors will get some readings on America's economy as well later this week, with reports due from the government on productivity and the job market. The monthly report on payrolls and the unemployment rate comes out on Friday.
"U.S. payrolls and central banks take center-stage this week, and alongside the latest developments in Italy this will probably dictate whether we continue the upward march toward the recent highs or whether we pull back to the levels seen during last week's wobble," wrote Jim Reid, analyst with Deutsche Bank in London, in a research note.
Fear & Greed Index pulling back
U.S. stocks ended higher Friday, capping a week of modest gains.
The dollar was up against the euro on growing talk that the European Central Bank may signal a rate cut as early as this week after a recent string of poor eurozone economic data and political instability in Italy that could rekindle the region's sovereign debt crisis.
There was little in the way of corporate news Monday. But shares of Apple (AAPL, Fortune 500)continued to slide, hitting another 52-week low. The stock is now down 20% so far this year.
First Published: March 4, 2013: 9:45 AM ET
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