Today: Fears of political gridlock in Italy send euro tumbling with worldwide ripple effect. Also, HP sells webOS, Zynga gains over gambling hopes, and Tesla says it lost $100 million over NY Times brouhaha.

Italy economic fears drag down markets

Stocks sank sharply Monday, with all three major indexes falling more than 1 percent, as investors feared that signs of political gridlock in Italy could hurt the stability of the euro.

The Standard & Poor's 500 dropped 1.83 percent, or 27.75 points, its worst loss since early November. The Dow Jones industrial average fell 216.40 points, or 1.55 percent; the tech-heavy Nasdaq declined 45.57 points, or 1.44 percent; and the Silicon Valley 150, consisting of the area's biggest tech companies, fell 20.21 points, or 1.57 percent.

Election results in Italy on Monday indicated a deeply divided Parliament, which could make it more difficult to pass reforms needed to stabilize its economy and reassure markets. That sent the value of the euro tumbling, impacting financial markets around the world.

"Europe hasn't gone away as an issue," Stephen Massocca of San Francsico's Wedbush Morgan told Reuters. "It puts them in a real quandary here because their financial support, their monetary support is all stipulated by the fact that these austerity programs are going to be in place."

Wall Street, which posted its first losing week of the year last week, are especially jittery this week as $85 billion in U.S. government budget cuts -- known as the sequester cuts -- could take effect Friday unless a last-minute agreement is reached, throwing the financial markets into deeper turmoil. "Sitting out there is the one-thousand-pound gorilla -- the sequester issue -- and certainly nothing is happening there," Tom Ghriskey of Solaris Group told Reuters.

Around the valley: HP sells webOS, Zynga surges, Tesla takes a hit

-- Hewlett-Packard (HPQ) said it would sell its webOS operating system to South Korea's LG Electronics. Palo Alto-based HP bought the software, which powered Palm smartphones, as part of its $1.2 billion purchase of Palm in 2010. LG said it would use the operating system on its TVs, and possibly on smartphones in the future. While LG will get the guts of webOS, HP will keep its cloud services, app catalog and patents, which could provide room for enterprise growth by HP. "We see this as an opportunity to broaden our reach in delivering services to customers on a variety of plaforms," HP Chief Operating Office Bill Veghte said, according to The Verge. "We can use this very broadly in our enterprise services organization." A purchase prices was not announced. HP shares fell 13 cents,or 0.68 percent, closing at $19.07.

-- Zynga shares shot up nearly 8 percent, as investors bet that the San Francisco gaming company would cash in on Nevada's decision last week to legalize online gambling. Zynga already runs a large online poker service, and hopes that real-money gambling will provide a lucrative new source of revenue. "As states legalize some form of online gaming, you're likely going to see Zynga positively impacted," Edward Williams, an analyst at BMO Capital Markets, told Bloomberg News. The company also announced it was closing its Baltimore office, and consoldating three other studios -- effectively a 1 percent reduction to its workforce. Zynga shares closed up 25 cents, or 7.84 percent, at $3.44.

-- Palo Alto-based Tesla Motors (TSLA) said Monday it lost up to $100 million in market value in the past couple of weeks after a spat with the New York Times over a review of its flagship Model S electric car. "We did actually get a lot of cancellations as a result of the New York Times article," Tesla CEO Elon Musk told Bloomberg TV. "It probably affected us to the tune of tens of millions, to the order of $100 million, so it's not trivial." Musk said "there were probably a few hundred" canceled orders. Tesla is counting on increased orders and deliveries of the Model S this quarter to finally make a profit. Tesla shares fell $1.73, or 4.79 percent, closing at $34.38.

Silicon Valley tech stocks

Up: Facebook, Zynga

Down: Apple (AAPL), Google (GOOG), Oracle (ORCL), Intel (INTC), HP, Cisco (CSCO), eBay (EBAY), Yahoo (YHOO), Gilead, Juniper, LinkedIn

The tech-heavy Nasdaq composite index: Down 45.57 , or 1.44 percent, to 3,116.25.

The blue chip Dow Jones industrial average: Down 216.40 or 1.55 percent, to 13.784.17.

And the widely watched Standard & Poor's 500 index: Down 27.75, or 1.83 percent, to 1,487.85.

Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services.