* Stocks extend two-week fall; materials, large caps off
* Euro falls versus the U.S. dollar despite Irish bailout
* Retailers off after two-week climb
* Indexes down: Dow 1 pct; S&P 0.8 pct, Nasdaq 1.1 pct (Updates to late afternoon, changes byline)
By Edward Krudy
NEW YORK, Nov 29 (Reuters) - U.S. stocks extended a two-week slide on Monday on worries Europe's credit crisis will spread despite a weekend agreement to bail out Ireland.
The euro fell against the U.S. dollar to its lowest in more than two months and broke below a key support level. That weighed on metal prices and shares in the materials sector. Also hurt were larger cap stocks, which derive a bigger percentage of revenues from overseas.
International Business Machines fell 1.2 percent to $142.11 and was the biggest drag on the Dow industrials. Healthcare company Johnson & Johnson shed 1 percent to $61.65 while Exxon Mobil Corp fell 0.4 percent to $68.96.
European Union finance ministers endorsed an 85 billion euro loan package to help Ireland bridge its deficit but investors said there was little clarity on how the 16-nation bloc might handle a wider crisis involving Spain and Portugal or if it had the political will to do so.
Michael Cuggino, a portfolio manager at Permanent Portfolio Funds in San Francisco said he was happy with his exposure to European equities, which he said was mainly in the "hard" commodity stocks. He declined to name individual stocks but said falling prices had helped create pockets of value.
"Even with all this, Europe has some tremendous companies," he said. "Just like there is in U.S. stocks, I think there's some value in European stocks as well, as a general rule. We focus more on the harder asset areas."
The Dow Jones industrial average dropped 107.70 points, or 0.97 percent, to 10,984.30. The Standard & Poor's 500 Index fell 9.66 points, or 0.81 percent, to 1,179.74. The Nasdaq Composite Index lost 26.83 points, or 1.06 percent, to 2,507.73.
The CBOE Volatility index, Wall Street's so-called fear gauge, rose 3 percent to 22.93, hitting its highest level since early October, indicating the anxiety level among investors was increasing.
Adding to the fundamental weakness, the S&P 500 failed to hold a technical support as it briefly traded below its 50-day moving average for the first time since early September.popularly traded E-Mini S&P futures has risen to 0.54, which shows a meaningful relationship between the two assets, from an insignificant 0.06 correlation two weeks ago.
The problems in Europe overshadowed signs of improving sentiment among consumers heading into the high-spend holiday season.
The number of shoppers in stores over the long U.S. Thanksgiving holiday weekend rose 8.7 percent compared with 2009, according to a private survey.
Still, the S&P retail index fell 1.3 percent after climbing nearly 4 percent since the middle of November.
Online retailer Amazon.com Inc rose 0.9 percent to $178.78 after hitting a record high on expectations of solid sales on Cyber Monday, a day of steep discounts for online shoppers.
FedEx Corp added 3.6 percent to $90.63 after Credit Suisse raised its rating on the package shipping company. (Reporting by Edward Krudy; Editing by Kenneth Barry)