Stocks closed lower amid worries about bank earnings and weak consumer spending on tech.
The market was weighed down by financials as investors awaited quarterly results later this week from Goldman Sachs and Morgan Stanley .
Technology shares also were hit as a downgrade on Apple reflected fears about consumer spending during the holiday shopping season.
Economic data showed manufacturing at record low levels, though not as low as feared, but declining prices in the sector indicating a growing threat of deflation.
The mood overall was cautious and there was sentiment that because there was little incentive to buy, most traders and investors were merely playing out the string until the end of the year. Stocks briefly made a run at positive numbers around noontime but were near their lows for the day with about half an hour left in trading.
"We've been trading off of recycled news for the last couple of months," Steve Grasso, of Stuart Frankel, said on CNBC. "We haven't seen new money really place a flag in the sand saying 'we're here to buy stocks.' There's been no need to do that when they go on sale the next day."
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Investors are worried about earnings reports from big banks, including Goldman Sachs , which some fear will report its first-ever loss. Goldman reports Tuesday morning and Morgan Stanley reports Wednesday morning.
Appleslumped following a downgrade by Goldman Sachs, which said the iPod and iPhone manufacturer's stock price was too high considering all the consumer weakness in the economy.
The dour predictions for Apple weighed on other peers in the industry, with BlackBerry maker Research in Motion also sharply lower.
Energy leader Chevron, positive for much of the day, slid as oil prices reversed gains and dropped more than $1 a barrel.
On the downside in the bluechip index, JPMorgan Chase continued to suffer after CEO Jamie Dimon said on CNBC last week that the company was having a horrible fourth quarter. Also, Merrill Lynch cut the stock to an "underperform" rating and forecast a loss for the bank's fourth quarter.
Bank stocks were lower across the board and the biggest drag on the Dow.
Bank of America shares slipped after it doused speculation that it was going to dump its stake in China Construction Bank.
Elsewhere, Honeywell shares gained after the manufacturer affirmed a lower 2009 outlook. The company said it expects profits to fall 6 to 16 percent amid the economic slowdown.
And Huntsman shares lost half their value after the company said it terminated a potential takeover by Apollo Management's Hexion Specialty Chemicals.
General Motors and Ford were both sharply positive after President Bush vowed that his administration would make sure the industry did not collapse. GM, in fact, led Dow gainers even as President Bush warned that a bailout deal was not imminent.
United Technologies helped stave off steeper losses for the Dow, as the diversified industrial company prepared to sell $1.25 billion in debt in 10 year notes. The debt sale will come in 10-year notes. Fellow Dow component Procter & Gamble also will sell $1 billion in 5-year notes.
Retail also was under pressure, with shares slumping of JCPenney and Macy's.
Market internals were negative, with losers beating gainers nearly 4 to 1 on anemic volume of about 765 million shares by 3:15 pm on the New York Stock Exchange.