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(Reuters) – Wall Street was flat on Monday after a steep drop in the previous session that erased the Dow industrials’ gain for the year, and analysts said there may be more declines after indexes fell below key technical support levels.

Signs of economic weakness around the globe and Europe’s intensifying debt crisis are unnerving investors, who have been piling out of riskier investments like commodities and equities for the perceived safety of higher-rated government bonds.

Banking stocks are heading into a bear market as Europe’s debt crisis pressures the sector. The KBW Bank index .BKX, which measures the performance of 24 banks, is down 16 percent from a peak in March. The index was down 1.2 percent just after the open on Monday.

Morgan Stanley (MS.N) has come under pressure as bond markets treat the bank as a junk-rated company, and the higher borrowing costs could already be putting it at a disadvantage even before an expected ratings downgrade. The bank’s stock is off 40 percent since late March, and was down 1.8 percent shortly after Monday’s open.

“We may well have a snap back rally on the equity side but I don’t think it will be a big one, there is still a lot of caution out there,” said Frank Lesh, afutures analyst and broker at FuturePath Trading LLC in Chicago.

“All we’ve really done is seen some short covering here in the stock indexes and we are just stable, bonds are still very elevated.”

The Dow Jones industrial average .DJI was down 23.88 points, or 0.20 percent, at 12,094.69. The Standard & Poor’s 500 Index .SPX was down 2.60 points, or 0.20 percent, at 1,275.44. The Nasdaq Composite Index.IXIC was down 1.71 points, or 0.06 percent, at 2,745.77.

Peter Cardillo, chief market economist at Rockwell Global Capital in New York said he was watching 1,275 as a support level on the S&P 500 after the index broke through its 200-day moving average on Friday following the worst decline for the index in 7 months.

“If we close under that tonight, then the market is headed lower in the short-term, possibly by 3 or 4 percent,” he said.

In a potential boost for markets looking for measures to end the debt crisis, German Chancellor Angela Merkel is pressing for much more ambitious measures, including a central authority to manage euro-area finances, and major new powers for the European Commission, European Parliament and European Court of Justice.

Three leading Portuguese banks said on Monday they would draw on funds provided under the country’s 78 billion-euro ($96-billion) international bailout to meet tough new capital requirements as they struggle with the country’s debt crisis.

“While we are not down 20 percent and in official bear market territory, we believe that we have entered a bear market,” wrote Wayne Kaufman, chief market analyst at John Thomas Financial in a note on Monday.

“Equities have not responded to oversold conditions or to very attractive valuations versus bonds, and we must take that as a warning,” he said.

An experimental Bristol-Myers Squibb (BMY.N) drug helped shrink tumors in patients with advanced melanoma, kidney and lung cancers in a preliminary trial, raising hopes for yet another drug that can wake up the immune system and train it to attack cancer cells. The stock rose 0.5 percent.

(Editing by Dave Zimmerman and Chizu Nomiyama)