Financial exchange traded funds were Monday’s worst U.S. sector ETF performers with European debt jitters continuing to shake markets while Italian government bonds were again under attack.

Standard & Poor’s on Friday placed many U.S. financial companies on credit watch, saying it could downgrade the sector unless a deal is reached soon on the U.S. debt ceiling.

Financial Select Sector SPDR Fund (NYSEArca: XLF) fell 1.5% while key holding Bank of America (NYSE: BAC) dropped more than 2%. The Dow lost more than 100 points.

Wall Street’s “fear index” rallied Monday as uncertainty over the U.S. debt limit further sapped investor sentiment. VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca: TVIX) rose 7%. [Euro ETFs Falter, Volatility ETFs Climb on Debt Fears]

ProShares Ultra Silver (NYSEArca: AGQ) was also among the top percentage gainers in ETFs Monday amid a jump in precious metals prices. Gold futures traded above $1,600 an ounce for a new record. [Precious Metals ETFs Rise on Debt Woes; Gold Tops $1,600]

European leaders are meeting this week to try and figure out how to stop the region’s debt crisis from deteriorating further. The trouble is spreading from Greece into larger countries such as Italy and Spain. PowerShares DB Italian Treasury Bond Futures ETN (NYSEArca: ITLY) fell more than 1% on Monday following its recent plunge.

In commodities markets, iPath Cotton ETN (NYSEArca: BAL) fell 5% on Monday as the exchange traded note continues to unwind following cotton’s historic rally.

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