Stocks rallied into the close Monday, posting modest losses amid doubts over the health of the banking industry and the apparent collapse of a major deal in the technology sector.
Major indexes fell as much as 2 percent following remarks from a prominent analyst who said financials face tough sledding ahead.
But strength in airlines and autos as well as some key pharmaceutical names helped mitigate losses. Noted analyst Meredith Whitney told CNBC that investors should be careful selling financials shares before earnings season.
The drop comes after stocks posted their best four-week gains in more than 75 years.
Analyst Mike Mayo, formerly of Deutsche Bank and now with CLSA Calyon, opened coverage on the group by saying that the recent fixes were "window dressing" meant to cover underlying problems that would continue to bedevil the sector.
Treasury Secretary Timothy Geithner also made statements over the weekend indicating the government would continue to play a strong hand in the industry.
Wells Fargo and Suntrust led losers on the financial side.
Mining giant Rio Tinto shares also slid as the company struggles to raise capital to pay off looming debt payments.
The Nasdaq tech gauge slumped as IBM’s $7 billion bid to take over Sun Microsystems fell apart over the weekend, reports citing people close to the matter said. IBM reduced its offer for the Silicon-Valley firm, causing Sun to try and renegotiate the terms of the deal.
Reverberations from the deal were felt through the sector, as Dell and Hewlett-Packard shares also posted losses.
The tech barometer also was hit by a downgrade of Cisco Systems , which fell after Goldman Sachs downgraded the networking from to neutral from a conviction buy.
On the flip side, shares of HSBC gained as the bank said investors took on nearly all of the $12.5 billion in discounted shares offered.
Another big gainer was MGM Mirage , which soared on news that it had hired Morgan Stanley to help sell its casino assets.
Continental Air Lines also posted a strong gain on anticipation that the airline is close to receiving approval for cooperation agreements with others in the industry, including United Airlines, for transcontinental operations.
And there were a handful of strong gainers in the pharmaceutical space, with Amgen helping cut Nasdaq losses and Dow component Merck a help to the industrials.
Citigroup led losers on the Dow, while General Motors was the big winner on the index on news that the automaker had a deal in the works to sell its Saab unit.
Investors were gearing up for what was expected to be a rough earnings season, though the focus likely will be more on outlook than results.
Alcoa kicks off the season after the bell Tuesday, and the Dow component shed more than 3 percent in anticipation.
Despite the losses it was another fairly light trading day, with fewer than 850 million shares changing hands on the New York Stock Exchange with less than an hour to go in trading. Market breadth was strongly negative, with losers beating gainers 3 to 1.
Asian stocks rallied to a 6-month high, with the Japanese finance minister saying the government plans to unveil a new economic stimulus package worth more than 2 percent of GDP on Friday, doubling spending to get the country out of the worst recession since World War II. European markets were also higher.
Despite a strong rally in stocks over recent weeks, traders are likely to remain wary at the start of what could be a dire earnings season. Market experts are divided over whether the overall bear-trend will resume or a solid base has already been formed in stock prices.
Bristol-Myers Squibb said it was extending a partnership with Japanese drug companyOtsuka to help lessen the financial blow of generic competition on its blockbuster drug Plavix.
In political news, President Barack Obama has spoken out against North Korea after the small communist state fired a long-range rocket Sunday. North Korea has ignored its international obligations, Obama said in a press statement, joining the widespread global disapproval of the incident.