U.S. stock indexes fell more than 1 percent in heavy volume on Monday after Standard & Poor's downgraded the credit outlook of the United States, adding to worries about the global economy after China moved to curb liquidity.

Investors also focused on Greece, where financial markets are increasingly convinced the country will have to renegotiate the terms of its public debt. Greek officials denied that some form of debt rescheduling was imminent.

The CBOE Volatility Index <.VIX> rose 11.2 percent, after earlier climbing as much as 24.5 percent, its largest daily percentage jump since February 22. It closed on Friday at its lowest since July 2007.

S&P downgraded its outlook on the United States credit rating to negative, saying it believes there's a risk U.S. policymakers may not reach agreement on how to address the country's long-term fiscal pressures.

We're a little surprised that the VIX is as low as it is, since market risks have risen and there's been some complacency, said David Joy, chief market strategist at Columbia Management in Boston, which oversees $347 billion. Joy added that Columbia Management had taken some short-term exposure off the table.

The stock market's vulnerability was demonstrated by its strong sell-off. In comparison, the reactions of the U.S. Treasury debt and dollar markets were more subdued. See and

The behavior of the bond market suggests that we could get a rebound in stocks, at least one related to the S&P news, Joy said. I'm not so sure we'll get a rebound related to Europe.

The Dow Jones industrial average <.DJI> was down 147.35 points, or 1.19 percent, at 12,194.48 The Standard & Poor's 500 Index <.SPX> was down 14.65 points, or 1.11 percent, at 1,305.03. The Nasdaq Composite Index <.IXIC> was down 32.34 points, or 1.17 percent, at 2,732.31.

In Monday's sell-off, the S&P 500 fell below 1,300 for the first time since March 24. Short-term support is seen near the 1,285 area.

On Friday, the S&P 500 fell for a second week as concern spread that growth expectations may have to be trimmed.

As investors move to companies expected to outperform in uncertain economic times, the defensive S&P 500 sectors like utilities <.GSPU>, consumer staples <.GSPS> and healthcare <.GSPA> posted the smallest losses in Monday's slide.

Citigroup Inc rose 0.9 percent to $4.46 after it reported a first-quarter profit that was slightly higher than expected, while Eli Lilly & Co fell 0.6 percent to $35.78 on concerns about looming generic drugs competition.

Mitch Rubin, chief investment officer at RiverPark Advisors in New York, said the day's earnings suggested volatility in the near term.

Market movement will be driven by earnings, and we've seen a lot of mixed results, Rubin said. There's been disappointment about bank results.

China raised banks' required reserves on Sunday for the fourth time this year, extending the fight against excessive liquidity and stubbornly high inflation in the world's second-largest economy.

Caterpillar Inc , hurt both by expectations of ballooning funding costs and China's move to harness liquidity, slid 3 percent to $104.02.

China's move and the cut in the U.S. credit outlook hurt basic materials and crude prices, sending the Reuters/Jefferies CRB index of commodities <.CRB> down 0.9 percent.

Exxon Mobil Corp dropped 1.7 percent to $82.86 while fellow Dow component Alcoa Inc fell 2.4 percent to $16.13.

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)

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