* Shares of materials, large caps off despite Irish rescue
* Euro hovers near two-month lows versus the U.S. dollar
* Retailers off after two-week climb
* Indexes down: Dow 1.2 pct; S&P 1.1 pct, Nasdaq 1.3 pct (Updates to midday, changes byline)
By Chuck Mikolajczak
NEW YORK, Nov 29 (Reuters) - U.S. stocks dropped 1 percent on Monday on lingering worries about Europe's ability to harness a credit crisis despite a weekend bailout agreement for Ireland.
The euro fell to more than two-month lows against the U.S. dollar and broke below a key support level, hurting commodity prices and shares in the materials and energy sectors.
Also hurt were larger capitalization stocks, which derive a bigger percentage of revenues internationally. Exxon Mobil Corp, off 0.9 percent to $68.64, was the top drag on the benchmark index. International Business Machines fell 1.7 percent to $141.68 and Johnson & Johnson shed 1.5 percent to $61.48.
European Union finance ministers endorsed an 85 billion euro loan package to help Ireland bridge its deficit. Nervousness that the credit crisis could spread to other euro zone members continued to weigh on global stocks despite the Irish rescue.
"The bottom line is the resolution around the Irish-specific debt crisis is going to mean whoever is next in line is going to have some significant compromises to make in terms of getting their own financial house in order," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
"It's going to get more painful to deal with these issues. It's very sobering."
The CBOE Volatility index, Wall Street's so-called fear gauge, hitting its highest level since early October 4, indicating anxiety levels 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.points, or 1.22 percent, to 10,956.60. The Standard & Poor's 500 Index lost 12.80 points, or 1.08 percent, to 1,176.60. The Nasdaq Composite Index slid 33.45 points, or 1.32 percent, to 2,501.11.
The 22-day correlation coefficient between the euro and the 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 S&P materials index declined 1.8 percent, dragged lower by Newmont Mining Corp, which lost 1.8 percent to $57.62.
U.S. consumers appeared to be spending again as about 212 million shoppers hit stores over the long U.S. Thanksgiving holiday weekend, an increase of 8.7 percent from 2009, according to a private survey.
Still, the S&P retail index fell 1.3 percent after climbing 3.5 percent in the last two weeks.
"Sales are going to be good this year, we just got a little ahead of ourselves," added Kenny.
Online retailer Amazon.com Inc rose 0.8 percent to $178.67 after hitting a record high on expectations of solid sales on Cyber Monday, a day of steep discounts for online shoppers.
FedEx Corp added 2.7 percent to $90.24 after Credit Suisse raised its rating on the package shipping company. (Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)