Stocks opened lower on Wall Street Monday, led by financials, after brokers downgraded several big names in the sector, including American Express.
Stocks surged in Asia as the Lunar New Year holiday began and European markets were higher in afternoon trading.
U.S. stocks are coming off of their best week in nearly five years last week. "After having had such a difficult market and seeing it recovering, it's time to contemplate whether all the problems have disappeared," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey, told Reuters.
The Dow Jones Industrial Average was down less than 1%, after a 3.9% gain from last week's rally. The Nasdaq and S&P 500 index also declined following last week's gains of 3% and 4.2%, respectively.
The Commerce Department reported that December U.S. factory orders rose 2.3%, the biggest gain since July, amid strong aircraft sales. Economists had expected the gauge to rise 2.6%. Orders for nondefense capital goods, which exclude aircraft and are considered a good measure of business spending, climbed 4.5%, the largest increase since March.
President Bush said Monday a weaker economy would lead to higher budget deficits as he unveiled a $3.1 trillion spending plan for fiscal 2009 that would nearly freeze domestic programs.
Shares of American Express, Capital One Day and Discover skidded in morning trading after UBS downgraded the financial-services firms to "sell" from "neutral" amid concerns about a consumer pullback.
"Just because we get a couple of [interest-rate] cuts from the Federal Reserve, it doesn't mean that all of a sudden everything is better,'' Tim Smalls, head of U.S. stock
trading at brokerage firm Execution LLC in Greenwich, Conn., told Reuters. "If anybody in the market is looking for a quick fix, we're not going to get it.''
In other ratings action, Goldman Sachs downgraded shares of rival brokerage Morgan Stanley to "neutral" and removed the stock from its "buy" list. Wells Fargo was the biggest decliner on the S&P 500 after Stifel Nicolaus and Merrill Lynch slapped the stock with a "sell" rating. Merrill Lynch also downgraded Wachovia.
Wall Street was still buzzing about Microsoft's bid for Yahoo and a weekend response from rival Google. The offer "brings to the forefront the fact that the market still trades on valuations. There's a feeling that there's been deeper discounting in the market place than is warranted by the fundamentals," Bakhos said.
Microsoft will wait for Yahoo's board to decide what is best for the company's future, as its offer is meant to create a very competitive business, a company official told CNBC on Monday, after reports that Google offered to help Yahoo fend off the $44.6 billion bid.
Microsoft's proposed acquisition of Yahoo would marry the world's biggest software maker with one of the leading Internet media companies, shaking up the market for online services such as email and advertising.
The Wall Street Journal reported on its Web site on Sunday that Google's chief executive Eric Schmidt called Yahoo's chief executive Jerry Yang to offer his company's help in any effort to thwart Microsoft's bid. Neither company had any comment on the report.
But Google fired back Sunday at Microsoft's $44.6 billion bid to acquire Yahoo, accusing the software giant of seeking to extend its computer software monopoly deeper into the Internet realm.
David Drummond, a Google senior vice president and its chief legal officer, said in a blog post that the combination of Microsoft and Yahoo could undermine the open competition that has fueled Web innovation.
Analysts warned the offer was still in very early stages and talk about a possible Google counter-attack may be unfounded.
"It's reactive tactics coming from inside Yahoo and Google," Aleksandra Bosnjak analyst at StrategyEye Digital Media, told "Worldwide Exchange."
"What we see here are industry shocks. I would not really think about it seriously yet, because it's all very speculative," Bosnjak said.
In other news, Wendy's said its fourth-quarter earnings more than quadrupled from a year-earlier loss from discontinued operations despite sluggish sales and higher commodity costs. The fast-food chain has been considering a possible sale for nearly a year.
Meanwhile, Intel shares fell despite a report in Barron's that said the chip maker will probably generate double-digit annual earnings growth over the next several years and extend its lead over Advanced Micro Devices .
--Reuters contributed to this report.