NEW YORK — Stocks slumped at the open of trading on Monday after a downgrade of U.S. credit triggered a spike in debt yields that threatened to raise borrowing costs throughout the nation's economy.

The Dow Jones Industrial Average dropped 295 points, or 0.7%, while the S&P 500 fell 0.9%. The tech-heavy Nasdaq plunged 1.2%.

Moody's, a top ratings agency, cut the U.S. credit rating on Friday, dropping it one notch from the top rating of Aaa to a lower classification of Aa1.

The credit downgrade unleashed a selloff of U.S. debt, sending Treasury yields higher, which in turn raised the cost of U.S. borrowing and stoked investor fears about wider impact across the economy.

"This is a major symbolic move as Moody’s were the last of the major rating agencies to have the U.S. at the top rating," a Deutsche Bank analyst said in a client note shared with ABC News.

The Treasury selloff sent long-term yields soaring above the level attained in the immediate aftermath of President Donald Trump's "Liberation Day" tariffs. That spike in yields helped persuade Trump to suspend a major swathe of the tariffs, Trump later said.

The current spike in debt yields coincides with U.S. House Republicans' push to pass a domestic policy bill that includes broad tax cuts. The nonpartisan Congressional Budget Office warned last month that the bill would raise the nation's debt, which now stands at about $36 trillion.

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