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European political uncertainty and another sign of a slowdown in the Chinese economy pushed stocks down Monday, with the three major U.S. indexes falling more than 1% before rebounding somewhat in afternoon trading.

Investors reacted to news that French President Nicolas Sarkozy came in second place in the first round of elections there behind Socialist candidate Francois Hollande, who has been openly hostile to EU austerity measures.

Plus, the Dutch prime minister, Mark Rutte resigned, putting that country’s prized AAA rating in jeopardy.

News of a slowdown in China’s manufacturing sector also exacerbated investors’ skittishness at the start of what will be a busy week on the economic and earnings front.

"The events over the weekend re-ignited concerns that the European community is going to have trouble working out a coordinated plan for austerity," said Douglas DePietro, head of equity sales trading at Evercore.

The Dow Jones industrial average () ended the day down 102 points, or 0.8%. The S&P 500 () shed 12 points, or 0.8%, and the Nasdaq () lost 30 points, or 1%.

In the U.S., Wal-Mart (, Fortune 500) dragged down the Dow after it was hit by allegations that top executives in its Mexican division attempted to conceal a widespread bribery scheme.

Shares closed down nearly 5%, and shares of its publicly traded Mexico unit dropped nearly 12%. The company says it is investigating the allegations.

U.S. stocks finished mostly higher Friday, as investors welcomed another round of strong earnings from corporate America and positive news out of Europe. However, the tech-heavy Nasdaq finished lower for a third straight week.

Europe: French President Sarkozy, one of the architects of the European agreement to avert sovereign debt default, lost the first round of elections and will face Hollande in a May 6 runoff.

Europe: ‘Dark clouds on the horizon’

Meanwhile, the Dutch Prime Minister’s resignation prompted new elections, after one of his coalition partners in the government withdrew due to negotiations over the 2013 budget. This could place the Netherlands’ AAA credit rating at risk, according to Kathleen Brooks, research director of Forex.com.

"Holland was once considered a ’safe’ triple A nation, however, that may not be the case," Brooks wrote in a note to clients Monday. "The Netherlands has overtaken France as the largest political risk this week."

The latest reading on eurozone manufacturing also fell unexpectedly Monday to the lowest level since November, a sign that the 17-nation block has fallen further into recession.

Worries that the problems in Europe are still not over were further driven home by Christine Lagarde, the managing director of the International Monetary Fund. Lagarde warned at meetings of the IMF and World Bank over the weekend that the "dark clouds on the horizon" for the global economy threatened the "light recovery blowing in a spring wind."

European stocks ended sharply lower on Monday. Britain’s FTSE 100 () shed 1.85%, while the DAX () in Germany plunged 3.4% and France’s CAC 40 () dropped 2.8%.

World markets: Fueling investor concerns about the global economy was a preliminary reading on Chinese manufacturing released early Monday, showing a contraction for the second straight month.

Asian markets ended lower across the region. The Shanghai Composite () shed 0.8%, the Hang Seng () in Hong Kong closed down 1.8% and Japan’s Nikkei () slid 0.2%.

Companies: It was a busy merger Monday with two deals announced ahead of the open. Dow component Pfizer (, Fortune 500) reached an agreement to sell its baby formula business to Nestlé () for $11.85 billion in cash. And AstraZeneca () announced it is buying Ardea Biosciences (), a California-based biotechnology company, for $1.3 billion, or $32 a share — a 54% premium from Friday’s closing price.

On Monday afternoon, Facebook announced that it would spend $550 million to buy part of Microsoft (, Fortune 500)’s patent portfolio that it acquired from AOL () two weeks ago for $1 billion.

Xerox (, Fortune 500), ConocoPhillips (, Fortune 500), and Kellogg (, Fortune 500) released first-quarter results ahead of the opening bell.

Xerox reported adjusted earnings of 23 cents a share, unchanged from a year earlier and matching forecasts. Its shares spiked following the report, but closed up only slightly. ConocoPhillips posted improved earnings of $2.02 a share, but it fell short of forecasts of a $2.08 a share. Its shares lost 0.8%.

Kellogg’s shares plummeted 6% after the cereal company cut its outlook citing the slowdown in Europe.

Can Netflix pull a rabbit out of its hat?

Shares of Netflix () dropped nearly 14% in after hours trading on a weak outlook for the current quarter. Netflix managed to beat analysts’ estimates but that wasn’t enough to help the stock. The company reported a first quarter loss of 8 cents per share better than forecasts for a 27 cents per share loss.

Currencies and commodities: One piece of good news for the U.S. economy is that average gas prices continued to retreat farther away from the $4 level.

The biweekly Lundberg Survey marked its first decline of the year, while the daily survey from AAA showed its seventh straight decrease, further raising hopes that gas prices might have already peaked for the year.

Gas prices keep easing away from $4

Oil for June delivery fell 77 cents to $103.11 a barrel.

The dollar gained strength against the euro and the British pound, but slipped against the Japanese yen.

Gold futures for June delivery lost $10.20 to $1,632.60 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged higher, pushing the yield down slightly to 1.93%.  

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A strong showing by Socialist candidate Francois Hollande in the first round of France’s presidential election Sunday may rattle U.S. and global financial markets in the coming weeks.

Hollande wants to renegotiate a European treaty, agreed to just last year, intended to limit excessive government spending. He wants the pact to emphasize growth over austerity. He has also promised to roll back some deficit-cutting reforms put in place by his opponent, current President Nicolas Sarkozy.

Many economists fear that those steps would upset the delicate cooperation with Germany that has been key to Europe’s response to its financial crisis. Sarkozy has formed a partnership with German chancellor Angela Merkel on Europe’s debt crisis, so close that many commentators refer to them as “Merkozy.”

“Europe is not `fixed’ yet, but if you have France and Germany agreeing on certain policies, that makes it more likely they will fix it somehow,” said Jay Bryson, global economist at Wells Fargo Securities. Disagreement between the countries’ leaders raises the risks that Europe’s crisis could worsen, he said.

Hollande finished just ahead of Sarkozy out of a 10-candidate field. They will face off May 6 in the final round of voting. Sarkozy is struggling to avoid becoming France’s first one-term president since 1981.

Hollande is a 57-year-old career politician and party boss who has never held a high-ranking position in French government. He led the Socialist Party during its last two presidential defeats, including in 2007, when his former partner, Segolene Royal, lost to Sarkozy.

Like most of Europe, France’s economy is struggling and jobs are one of the top issues on voters’ minds. The International Monetary Fund forecasts the economy will barely expand this year. The unemployment rate is nearly 10 percent.

France’s election results come as the European debt crisis has flared again after months of relative quiet. Many analysts question whether Italy and Spain can stick to steep budget cuts and labor market reforms that they have promised to get their finances in order and jump-start economic growth.

Europe’s financial problems have repeatedly roiled U.S. stock markets in the past two years. The European Union is the United States’ largest trading partner and a financial meltdown in the region would cut into U.S. exports and reduce factory production. U.S. banks would also likely pull back on lending to preserve cash in response to a worsening financial crisis.

Italian and Spanish bond yields, after falling earlier this year, have risen in recent weeks. That indicates investors see the bonds as riskier and are demanding higher rates to buy them.

The renewed fears about Italy and Spain make it a particularly risky time for France and Germany to disagree over how to resolve the debt crisis, economists said.

“It raises uncertainty, and markets never like uncertainty,” Bryson said high quality business cards.

That increased risk, in turn, makes it more likely that investors in the U.S. and around the world will shift money to safer assets _ U.S. and German government bonds, for example _ and away from riskier holdings, such as stocks.

Bonds from highly indebted European countries, such as France, Italy and Spain, are also likely to take a hit. Hollande’s campaign promises, such as his commitment to lower France’s retirement age, could worsen the country’s budget deficit.

And his pledge to raise the top tax rate for the wealthiest in France to 75 percent would slow the country’s economy, economists say. That would make it harder to generate the tax revenue to pay off its debts.

Hollande also uses anti-free market rhetoric that could also alienate investors. In a rally last week, he pledged to be a president “stronger than the markets, stronger than finance.”

There are already some signs that investors are worried about the election’s ultimate outcome. Dan Greenhaus, chief economic strategist at BTIG, an institutional brokerage, said that yields on France’s 2-year bonds have jumped in recent weeks.

Currently, 10-year French government bonds yield about 3 percent, Greenhaus said, after creeping up a bit recently. That’s much lower Italian and Spanish 10-year debt, where yields are just below 6 percent. But the gap between French and German bond yields has widened steadily since last summer.

“Nervousness about the election is clearly having an effect,” he said.

Still, Jeffrey Bergstrand, a finance professor at the University of Notre Dame, said the possibility that financial markets will drive up France’s borrowing costs will limit Hollande’s ability to sharply disagree with Germany or radically depart from Sarkozy’s policies.

“He can’t go rogue,” Bergstrand said. “There’s too much on the line.”

The timing of the market’s reaction is also uncertain. Most investors expected Hollande would edge out Sarkozy and that the two would face each other in the run-off election, Greenhaus said. Since Sunday’s results met those expectations, the initial market reaction may be limited.

One result that wasn’t forecast was the strong showing by far-right candidate Marine Le Pen, who ran on an anti-immigrant platform aimed mostly at Muslims. She captured 19.2 percent of the vote.

Those voters may be more likely to support Sarkozy in the second round, rather than Hollande, Bryson said. That raises Sarkozy’s chances, Bryson said, “and that’s the market’s preferred outcome.”

A stronger combined showing by Hollande and a far-left candidate, Jean-Luc Melenchon, would have unnerved markets more in the short run, he added.

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Portuguese bond yields, the highest after Greece

The Coca-Cola Co. is continuing to expand its reach worldwide and turning to a variety of smaller drink sizes to boost profits and keep rising commodity costs in check.

The world’s biggest soda maker on Tuesday reported better-than-expected profit for its first quarter as it sold more of its drinks around the globe.

Although the volume growth came from all regions, the world’s largest soda maker said increases were far greater in emerging markets. In the region encompassing Russia, India, the Middle East and Africa, for example, volume grew 9 percent, compared with a 2 percent increase in North America.

The Atlanta-based company, which has more than 500 brands including Fanta, Sprite and Minute Maid, also had strong growth beyond its sodas as consumers have become more concerned about consuming too many empty calories. Global volume for bottled water grew 15 percent in the quarter, while volume for energy drinks rose 25 percent. That surpassed the volume gains in the company’s namesake Coca-Cola soda, which increased 4 percent.

Even the slight bump in volume in North America was driven largely by the company’s Powerade energy drinks, Dasani bottled water and zero-calorie vitaminwater.

Despite the competition and market saturation at home, CEO Muhtar Kent said: “We believe North America is a growth market for our business.”

Total revenue was $11.14 billion for the three months ended March 30, up 6 percent from $10.52 billion a year ago. Analysts expected revenue of $10.82 billion for the latest quarter.

Coke has managed to offset rising commodity costs in recent years by offering drinks in smaller packages that bring bigger profits. Just four years ago, for example, the company offered only one size for on-the-go occasions in the U.S. _ a 20-ounce bottle.

Since then, Coke has rolled out drinks in 14-ounce, 12-ounce and 12.5-ounce bottles, as well as a 7.5-ounce “mini-can.”

“Moms buy the mini-cans. They love if for their kids,” Kent said.

In addition to improving margins, Kent said those smaller sizes are desired by consumers concerned about reducing their sugar intake.

Although Coco-Cola does not break out price increases, the company said such pricing models helped drive up revenue by 3 percent.

For the quarter, Coke said it earned $2.05 billion, or 89 cents per share, which was a penny per share more than what analysts polled by FactSet expected. In the year-ago period, it had net income of $1.9 billion, or 82 cents per share.

The company also said that the cost-cutting program it began in the quarter is on track. When completed, the measures are expected to save up to $650 million annually by 2015.

Coke is looking to trim costs wherever possible as another way to offset rising prices for ingredients, which continue to eat into profits for food and drink makers industry-wide. Coke said its cost of goods rose 10 percent in the quarter.

Kent also noted that Coke’s global marketing campaign for the summer Olympics in London is set to strengthen its brands by “tapping into emotional passion points like sports and music.”

Shares of Coca-Cola closed up $1.51, or 2 percent, at $73.95.

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Consumers have become accustomed to lots of choice for entertainment and information services. Music and movie services offer single downloads and a range of subscription models, while newspapers and magazines sell their content as individual issues or subscriptions on multiple platforms.

Yet Canadian cable and satellite providers remain a stubborn holdout. The broadcast community has long resisted a market-oriented approach that would allow consumers to exercise real choice in their cable and satellite packages, instead demanding a corporate welfare regulatory framework that guarantees big profits and mediocre programming. That could change if the Canadian Radio-television and Telecommunications Commission has the courage to push back against Bell Media in a major case involving the terms of broadcast distribution.

The case pits Canada

Ford Motor Co. is raising its forecast for U.S. auto sales this year, citing improving consumer confidence, employment, low interest rates and other factors.

Ford’s Americas President Mark Fields said Wednesday that the company now expects full-year U.S. sales in the range of 14.5 million to 15 million. That’s up from 13.5 million to 14.5 million at the beginning of this year.

“We had been planning for industry sales to improve to this level, but it has happened a bit sooner than we planned,” Fields said guaranteed approval cash loans.

Fields said Ford will likely lose market share because it won’t make enough vehicles to satisfy demand. The company may add production capacity in the fourth quarter, he said.

Automakers posted their best monthly sales since 2007 in March, with 1.4 million vehicles sold.

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Scotland Yard’s communications chief resigned Thursday, the third senior police figure to part with his job over the force’s failure to come to grips with Britain’s phone hacking scandal.

Dick Fedorcio stepped down after the force decided he would face disciplinary proceedings over a contract awarded to a former executive at Rupert Murdoch’s now-defunct News of the World tabloid. The Independent Police Complaints Commission ruled that Fedorcio had to answer questions over the decision to hire Neil Wallis, the former News of the World executive later arrested on suspicion of breaking into voicemails.

The links between senior members of the News of the World and Scotland Yard have come under particularly close scrutiny because both organizations insisted for years that there was no evidence of widespread phone hacking at the tabloid.

Those assurances fell apart after it emerged that journalists at the paper routinely broke into the phones of celebrities and other public figures to score scoops or get leverage. Three parallel police inquiries, a cascade of lawsuits, and a judge-led inquiry have since lifted the lid on a host of illegal practices, from large-scale bribery to computer hacking no fax cash advance.

The scandal’s fallout has shaken Britain’s establishment. The News of the World has been shut, the country’s press watchdog has been scrapped, and dozens of journalists, executives, and public officials have either resigned, been suspended or been arrested over their role in the scandal.

Among them are former Scotland Yard chief Paul Stephenson and ex-Assistant Commissioner John Yates, both of whom resigned in July. Fedorcio’s decision was announced Thursday, but he’d been on extended leave since August.

Politicians also have been drawn into the scandal. Kit Malthouse, London’s deputy mayor for policing and crime, was asked why he had challenged police about the resources they were pouring into the phone hacking investigation.

Malthouse, called before the judge-led inquiry on Thursday, defended his skepticism, saying that the phone hacking investigation is projected to draw in some 200 people by 2013.

“That’s the equivalent of eight murder squads,” he said.

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Stocks were mostly lower Wednesday on Wall Street following a bumpy start to the week.

The Dow Jones industrial average was down 45 points at 13,125 in the first two hours of trading, giving up an earlier gain of 20. The Standard & Poor’s 500 index was down three points to 1,402, and the Nasdaq composite was down less than a point at 3,073.

The declines were broad. Only three of the 10 industry groups in the S&P 500 index rose. Aluminum maker Alcoa led the Dow lower with a decline of 1.2 percent.

Hartford Financial jumped 4.3 percent after the company said it would get out of the annuity business and focus on property and casualty insurance, group benefits and mutual funds. Hedge fund manager John Paulson had urged Hartford to spin off businesses.

Green Mountain Coffee Roasters soared 8.3 percent. The company said it was expanding its partnership with Starbucks to sell Starbucks’ Vue coffee packs for use in Green Mountain’s Keurig single-cup machines. The news relieved investors concerned that Starbucks’ new single-cup Verismo coffee machine might be a competitive threat to Keurig.

FSI International, which makes equipment for producing microelectronics, jumped 10 percent after the company reported that orders skyrocketed in the latest quarter, helping the company beat analysts’ forecasts.

Baker Hughes fell 4 percent after the oil-field services company said its profit margin would fall below last quarter’s as companies shift from crude to natural gas exploration. Baker Hughes is facing shortages of raw materials used in its pressure pumping business, a decline in fleet usage and higher-than-expected personnel and logistics costs.

The yield on the 10-year Treasury note fell to 2.32 percent from 2.36 percent late Tuesday. The dollar fell against the euro. Gold and crude oil prices rose slightly.

Stocks closed lower on Tuesday for only the second time in two weeks after two reports suggested an economic slowdown in China. Supercharged economic growth in China over the past three years has helped sustain the global economic recovery. The Dow closed down nearly 69 points, its biggest loss in two weeks.

The Dow is still up 1.6 percent this month and 7.7 percent so far this year. Other indexes are up even more in the year to date: The S&P 500 is up 11.7 percent, the technology-focused Nasdaq composite 18.1 percent.

In a research report Wednesday, Goldman Sachs analysts urged investors to dump bonds and put money into stocks. The report argues that the weak economic growth in the United States and Europe is not universal, and that the 2010s could be the strongest period for world growth between 1980 and 2050.

It also argues that, while Japan’s two decades of economic stagnation in the 1990s and 2000s are a tempting comparison to what the U.S. and Europe face today, Japanese stocks were far more overvalued before Japan entered its decline.

“We think it’s time to say a `long goodbye’ to bonds, and embrace the `long good buy’ for equities as we expect them to embark on an upward trend over the next few years,” the report says.

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About 100 students protested Friday ahead of a speech at Cambridge University by Dominique Strauss-Kahn, the former International Monetary Fund chief whose career collapsed after he was charged with sexual assault.

The 62-year-old French politician, often called DSK, was scheduled to speak on Europe’s financial crisis at the university’s debating society later Friday despite calls for the event to be canceled. The protesters said the university should not give a platform to a man with such a troubling attitude toward women.

“It’s got nothing to do with freedom of speech,” said student Francesca Williams, 21. “They’re inviting a man who hates women. I don’t think DSK should be given the privilege of speaking in front of a private audience.”

Earlier, police arrested a man and a woman, both in their early 20s, on suspicion of vandalizing The Cambridge Union Society building. The Cambridge News website displayed photos showing its walls defaced with messages including “DSK GO AWAY” and “WOMEN DESERVE BETTER.”

Strauss-Kahn resigned as head of the IMF after allegations last May that he sexually assaulted New York hotel maid Nafissatou Diallo no fax payday advances. Prosecutors later dropped criminal charges against him, but Diallo has brought a civil case against him.

In an unrelated case, he was questioned by police in Lille, France, last month about a suspected hotel prostitution ring.

Diallo’s lawyer, Douglas Wigdor, spoke to about 100 Cambridge students and journalists on her behalf at a rival event earlier Friday. Letting Strauss-Kahn speak at the prestigious university was “giving him a platform to use Cambridge University to help his publicity campaign,” Wigdor said.

A statement posted Friday on the debating union’s website states that the invitation was made well before Strauss-Kahn’s controversial departure from the IMF. His experience in French politics mean that he was “exceptionally well qualified” to speak on the financial crisis and the French presidential election, it said.

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