U.S. stocks fell on Monday, with the Dow Jones Industrial Average extending declines after its worst week since November 2011, as investors pondered the Federal Reserve's plan to reduce asset purchases and worried about China's economy.
"We're seeing a carryover from what we had at the end of last week; there are increasing concerns about the emerging China story and currencies, specifically of Argentina and Turkey, that are casting a pall over the market. And this comes at a point at which valuations are full, so the market is ripe for a setback," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
"Earnings are coming in okay, but not spectacular, which is enough to cause congestion in the markets," he added.
Apple gained ahead of the iPhone maker's first-quarter earnings report after the close.
Monday's economic data had the Commerce Department reporting new home sales totaled 414,000 in December versus a 458,000 estimate.
Caterpillar shares rose after the mining-and-construction-equipment maker announced earnings, with its CEO noting "signs of improvement in the world economy." The optimism voiced by Doug Oberhelman extended to emerging markets, a source of concern for investors in recent weeks.
"The reality facing U.S. investors remains one of diminished political risk, solid earnings, strengthening economics and diminishing Fed bond purchases. This reality, combined with the relative valuation implications of declines in both stock prices and interest rates since the start of the year, still points to the opportunity in being a little over-weight equities and under-weight fixed income," David Kelly, chief global strategist at J.P. Morgan Funds, wrote in emailed commentary.
After wavering between gains and losses, the Dow Jones Industrial Average fell 41.23 points, or 0.3 percent, to 15,837.88.
The S&P 500 declined 8.73 points, or 0.5 percent, to 1,781.56, with technology faring the worst and industrials the best performing of its 10 major industry groups.
International Game Technology fell sharply; the manufacturer of casino-style gaming equipment last week posted first-quarter earnings that missed estimates.
Extending declines into a third session, the Nasdaq fell 44.56 points, or 1.1 percent, to 4,083.61.
For every stock rising, nearly two fell on the New York Stock Exchange, where 780 million shares traded. Composite volume surpassed 4 billion.
The dollar wavered against the currencies of major U.S. trading partners and Treasury prices retreated, with the yield on the 10-year note used in figuring mortgage rates and other consumer loans rising 5 basis points to 2.77 percent.
Stocks in Europe declined, as did equities in China and Indonesia.
The Federal Reserve could announce further reductions in stimulus this week amid signals that Chinese growth is slowing. The central bank starts a two-day policy session on Tuesday, with most analysts expecting the Fed will likely trim another $10 billion from its monthly bond purchases.
However, recent developments make the outcome of the Fed meeting less certain. "The concern is that the Fed is in a no-win situation. Should the Open Market Committee decide to continue to taper, this could be viewed as a lack of support. On the other hand, should (Federal Reserve Chairman Ben) Bernanke continue buying $75 billion a month in Treasuries and mortgaged-backed securities, this could be interpreted as a lack of confidence in the economy," said Bruce Bittles, chief investment strategist at RW Baird & Co., wrote in emailed commentary.
On Friday, stocks fell sharply as investors pulled money from emerging markets and other assets viewed as risky.
—By CNBC's Kate Gibson
Coming Up This Week:
Monday: Companies reporting earnings after the close include Apple.
Tuesday: Durable goods at 8:30 a.m. Eastern. S&P/Case-Shiller at 9 a.m. Eastern. Consumer confidence at 10 a.m. Eastern. Federal Open Market Committee starts two-day meeting. Earnings expected from Comcast, DuPont, Ford, Pfizer, Yahoo, American Airlines, AT&T, Amgen, Ace, Owens-Illinois, CIT group, Corning, Nucor, DR Horton, Illinois Tool Works, WMWare, Siemens, NextEra Energy.
Wednesday: FOMC statement to be released at 2 p.m. Eastern. Earnings from Boeing, Facebook, Chrysler/Fiat, Novartis, Biogen Idec, EMC, JetBlue, Dow Chemical, Wellpoint, Qualcomm, Citirix, Las Vegas Sands, Novartis, Marathon Petroleum, Southern Co, Valero and Symantec.
Thursday: Initial jobless claims at 8:30 a.m. Eastern, Real fourth-quarter GDP at 8:30 a.m. Eastern. Pending home sales at 10 a.m. Eastern. Earnings from Google, Exxon Mobil, Amazon.com, Chipotle, ConocoPhillips, Celgene, Eli Lilly, 3M, UPS, Royal Dutch Shell, Diageo, Occidental Petroleum, Colgate-Palmolive, Harley-Davidson, Northrop Grumman, LVMH, Time Warner Cable, Altria, PulteGroup, Raytheon, Ericsson, Blackston, Viacom, Whirlpool, Under Armour, Cardinal Health, Visa, Potash, Tenneco, Sherwin-Williams, Autonation and Beazer Homes.
Friday: Personal income at 8:30 a.m. Eastern. Consumer sentiment at 9:55 a.m. Eastern. Housing vacancies at at 10 a.m. Eastern. Earnings from Chevron, Honda, MasterCard, Autoliv, Brookfield Office Properties, Dominion, Mattel, National Oilwell, Tyson Foods, Weyerhaeuser, Booz Allen Hamilton, Lear Legg Mason, Tyco, Mead Johnson, Aon and Paccar.
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