US stocks dropped on Monday on concerns that the pain on economic front will be further compounded by dismal corporate quarterly results.

The Dow Jones Industrial Average dropped 125.13 points or 1.46% to finish at 8,474.05. The S&P 500 fell 20.09 points or 2.26% to 870.29. The Nasdaq Composite decreased 35.80 points or 2.09% to end at 1,538.79.

Citigroup (NYSE: C) sank $1.15 or 17.4% to $5.60 on fears that the bank may post huge quarterly losses. According to reports, Citigroup is contemplating merging its Smith Barney unit with the Morgan Stanley's (NYSE: MS) brokerage unit. In yet another development, former Treasury Secretary Robert Rubin resigned from his position as senior counselor from Citi on Friday.

Bank of America (NYSE: BAC) plummeted $1.56 or 12.01% to $11.43.JP Morgan (NYSE: JPM) slumped $1.06 or 4.08% to $24.91. Goldman Sachs Group Inc. (NYSE: GS) retreated $6.25 or 7.45% to $77.67.

Among insurance stocks, Hartford Financial Services (NYSE: HIG) plunged $3.38 or 18.61% to $14.78. Prudential Financial Inc. (NYSE: PRU), Lincoln National Corp. (NYSE: LNC) and Principal Financial Group Inc. (NYSE: PFG) tumbled over 10%.

Shares of Alcoa (NYSE: AA) declined 75 cents or 6.94% to $10.06 after Deutsche Bank cut its rating on Alcoa to sell from hold and lowered price estimate on its stock by 20% to $8. The largest US aluminum producer is set to announce its fourth-quarter results after the market close. Alcoa Inc. announced last week that it will cut 13,500 jobs and reduce production by 18% due to continued slump in demand and prices of metal.

Equipment maker Caterpillar Inc. (NYSE: CAT) slid $2.01 or 4.65% to $41.19.

Early on Monday, Abbott Laboratories (NYSE: ABT) announced that it would acquire Advanced Medical Optics (NYSE: EYE) for $22 a share, or about $2.8 billion in cash. Advanced Medical Optics soared $12.65 or 142.94% to $21.50. Shares of Abbot Laboratories slipped $1.11 or 2.17% to $50.06.
 
Energy stocks fell. Exxon Mobil Corp. (NYSE: XOM) dropped $1.03 or 1.33% to $76.54. Chevron Corp. (NYSE: CVX) shed $2 or 2.77% to close at $70.82.

According to reports, Obama's economic team is working on an overhaul of the rescue package. The team is expected to broaden financial bailout package to include municipalities, small businesses and homeowners.

European stocks finished with losses. The U.K. FTSE slumped 22.35 points or 0.50% to 4,426.19. The German DAX and French CAC slipped 1.34% and 1.62% respectively.

Asian stocks settled in red. Hong Kong's Hang Seng Index dropped 406.44 points or 2.83% to 13,971.

NYMEX Crude Oil for February delivery declined $3.18, or 7.8%, to settle at $37.65 a barrel.

Disclosure: Author does not own any of the stocks discussed here.