* Euro zone debt woes hit stocks, euro
* European, U.S. shares drop
* Euro loses broadly, record low against Swiss franc (Updates U.S. trading)
By Al Yoon
NEW YORK, May 23 (Reuters) - Doubts about Europe's ability to manage its debt hammered markets on Monday, knocking the euro to its lowest in two months and dragging down equities in Europe and the United States.
Investors unloaded riskier assets on raised concerns over the euro zone crisis as weaker economies struggle under huge debt.
Following a three-notch cut of Greek debt by Fitch Ratings on Friday, which pushed the country's rating deeper into junk status, rival Standard & Poor's revised its outlook for Italy to "negative" from "stable" on Saturday. For more see [ID:nLDE74M0V7].
"We have a confluence of negative events that have taken place over the weekend. All of that is compounding to create this toxic mix for the euro." said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.
Investors reacted to the various events by reversing bullish bets and seeking safer havens, shifting funds into U.S. government debt, gold and the dollar.
Benchmark stock indexes were down. The Dow Jones industrial average <.DJI> dropped 146.59 points, or 1.17 percent, to 12,365.45. The Standard & Poor's 500 Index <.SPX> lost 16.04 points, or 1.20 percent, to 1,317.23 and the Nasdaq Composite Index <.IXIC> fell 48.59 points, or 1.73 percent, to 2,754.73.
The pan-European FTSEurofirst 300 index fell 1.8 percent, while emerging market equities <.MSCIEF> slumped 2.4 percent. World stocks <.MIWD00000PUS> declined 1.7 percent.
The euro fell to a record low against the safe-haven Swiss franc
The dollar index <.DXY> rose 1 percent, which dented
commodity prices and shares of commodity-sensitive shares.
Alcoa Inc
U.S. crude oil
Europe's crisis appeared to deepen as the ruling Spanish Socialists were hit by stinging losses in local elections and now face walking a tightrope between voter anger over sky-high unemployment and investor demands for strict austerity measures.
Investors are increasingly concerned that voter rebellions against austerity plans could cause bailouts and budgetary pact agreements to unravel, leaving large swathes of debt in jeopardy of default.
Speculation also mounted over a possible restructuring of Greek debt, pressuring the euro.
Greek Prime Minister George Papandreou discussed new emergency measures to cut Greece's deficit in a bid to convince leaders the country can avoid a restructuring.
Government bonds, except for those in the euro-zone periphery, rallied as investors sought higher-quality and easily traded assets.
Benchmark 10-year Treasury
"We are experiencing another cycle of concerns that is causing investors to question the risk-reward scenario in equities," said Andre Bakhos, director of market analytics at Lek Securities in New York. "Until there is better visibility, investors will play their cards close to the vest." (Additional reporting by Jeremy Gaunt, Brian Gorman, Fiona Ortiz and Saikat Chatterjee in London and Chuck Mikolajczak and Wanfeng Zhou in New York; Editing by Dan Grebler)