The $85 billion spending cuts officially started taking effect over the weekend. While stocks so far have largely ignored the concerns over the sequester, analysts say signs the cuts are beginning to impact the economy could eventually move markets.
Over the weekend, House Speaker John Boehner said he and President Barack Obama had made no headway on a deal to avoid automatic budget cuts. Meanwhile, House Republicans are expected to introduce a bill to extend government funding through September, to avoid a government shutdown at the end of the month.
There are no major economic or earnings reports scheduled for release.
The Shanghai Composite tumbled to its lowest level in six weeks after the Chinese cabinet announced an increase in down payments and loan rates for buyers of second homes in cities where prices are rising too quickly.
"Chinese tightening of monetary policy amid soaring property prices is the first test of investor resolve to push equity markets on to higher ground this week," wrote Mike McCudden, head of derivatives at stockbroker Interactive Investor.
Yahoo edged higher after the Internet company said it plans to discontinue seven of its products, including its mobile BlackBerry app. Separately, Barclays upgraded its rating on the company to "overweight" from "equal weight," saying Yahoo's stakes in Alibaba and Yahoo Japan are undervalued.
Celgene said its experimental psoriasis drug was found to be safe and effective in a trial, paving the way for a filing for regulatory approval during the second half of 2013. But shares declined in pre-market trading.
In Europe, the banking sector was under pressure after worse-than-expected results from HSBC, the region's biggest bank. HSBC CEO Stuart Gulliver said the bank had faced a challenging operating environment in 2012, with low economic growth and changing regulations.
Japan was an exception to the negative trend, with the Nikkei reaching a four-and-a-half-year peak after Haruhiko Kuroda, the government's nominee for the post of Bank of Japan Governor, testified in favor of further aggressive monetary stimulus.
Later in the week, investors will focus on February's official jobs numbers, out on Friday.
"With a full economic agenda lying in wait, culminating in the big U.S. employment number on Friday, investors should strap themselves in for a bumpy ride. With the deep spending cuts taking effect in the U.S., there has been increasing demand in theoptions market for 'puts', as investors start to move to the sidelines and take some risk off the table," said McCudden.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
MONDAY: Fed governor Powell speaks, CERA Week; Earnings from Transocean
TUESDAY: ISM non-mfg index, Qualcomm shareholders mtg; Earnings from Verifone Systems
WEDNESDAY: Weekly mortgage apps, ADP employment report, factory orders, oil inventories, Fed's Beige Book, Fed's Fisher speaks, Disney shareholders mtg, ExxonMobil shareholders mtg; Earnings from Staples, American Eagle Outfitters, Big Lots, PetSmart
THURSDAY: Bank of England announcement, Challenger job-cut report, ECB announcement, international trade, jobless claims, productivity & costs, quarterly services survey, natural gas inventories, consumer credit, Fed balance sheet/money supply, chain-store sales, Green Mountain shareholders mtg, weekly rail numbers; Earnings from Kroger, Smithfield Foods, H&R Block, Pandora
FRIDAY: McDonald's sales, non-farm payrolls, wholesale trade; Earnings from Ann, Foot Locker
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