Stocks ended lower Monday, led by industrials, materials and techs. Investors once again shrugged off a wave of merger-and-acquisition activity, which normally gives the market a boost.
The Dow Jones Industrial Average fell 39.21, or 0.4 percent, to close at 10,174.41. That brought its three-day loss to 2 percent.
About half of the Dow components finished lower, led by Caterpillar , Cisco and Hewlett-Packard.
The S&P 500 and Nasdaq also fell, with the tech-heavy Nasdaq the hardest hit of the three. The CBOE volatility index, widely considered the best gauge of fear in the market, was around 25 at the closing bell.
AIG sharesfell following news that the company's aircraft-leasing unit ILFC has repaid nearly $4 billion in loansto the US government.
M&A activity is picking up as companies look to squeak in some deals before the Bush tax cuts expire.
Hewlett-Packard was among the biggest drags on the Dow after the tech titan made a bid for data-storage company3Par at $24 a share, which represents a 33 percent premium against a previous offerfrom Dell .
Another potential bidding war in the making: BHP Billiton's hostile offer for Canada's Potash could see competition as two potential rival bidders have emerged, according to reports. BHP is due to launch a charm offensive in Canada this week to strengthen its chances of securing the deal.
The news pushed other companies in the space higher, including Compellent Technologies and Isilon.
3M shares rose after executives said the company, which makes everything from Scotch tape to Post-It notes, plans to spend about $2 billion on acquisitions in 2010.
What's the most important piece of data traders are watching this week? Click on the video at left.
Blackstone Group agreed to a deal with Hong Kong's Great Eagle Group to build high-end apartments in China, according to the Financial Times.
Campbell Soup shares rose as the world's largest soup producer may be weighing a $2.3 billion break-up bid for Britain's United Biscuits, according to London's Sunday Times.
And UK bank HSBC announced it plans to buy up to 70 percent of South Africa's Nedbank.
Some traders attributed the day's weakness to comments from Europe. Earlier, Hungarian Central Bank president Andras Simor’s cast doubt on the possibility of continuing talks woith the IMF after negotiations collapsed last month, mainly over Hungary’s 2011 budget shortfall target and fiscal policy.
“I have no knowledge of any initiative from the government's part to relaunch the talks," Simor said at a press conference following the central bank's rate-setting meeting.
Weakness also nagged at banks and homebuilders, with Morgan Stanley down almost 1 percent and Beazer Homes off more than 4 percent.
Retailers were mostly lower but investors continued to bet on staples like Walmart , which rose 1.8 percent.
Johnson & Johnson shares rose despite news of another recall. The health-care products company is recalling almost 100,000 boxes of daily disposable contact lensesfrom Asia and Europe following customer complaints. The company's reputation has been tarnished over the past year by numerous recalls of Tylenol, Motrin and other nonprescription medicine brands.
Elsewhere in the health-care sector, researchers at Gilead Sciences have announced that it a treatment it is developing for alcoholism may also be effective in treating cocaine addiction.
And Jazz Pharmaceuticals plunged more than 20 percent after advisory panel rejected the company's fibromyalgia treatmentamid concerns that it could be used as a "date-rape" drug.
In the commodities markets, the price of wheat rose once againin the wake of the Russian drought and oil fell to $73.10 a barrel.
Kansas City Federal Reserve Bank President Thomas Hoenig said larger banks perceived as "too big to fail" have a lower cost of capital, putting smaller banks at a disadvantage. Hoenig said it was not clear whether the financial reform act would put big and small banks on an equal footing.
Hoenig has been the lone dissenter on the Fed's policy-setting committee in recent months, arguing the economy is beginning to recover and that the Fed should start to shrink its balance sheet and end its pledge for an extended period of low interest rates.
Volume was extremely light — in fact, the lightest it's been all year — with 864.3 million shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 19 to 11.
Still to come, reports are due this week on the housing market, durable goods orders, consumer sentiment and the second look at second-quarter GDP.
Housing remains especially weak following the expiration of the government's tax credit earlier this year. Reports on existing and new home sales are due out Tuesday and Wednesday, respectively.
And auctions of 2-year, 5-year, and 7-year notes are expected from Tuesday through Thursday.
TUESDAY: Existing home sales, Richmond Fed survey, 2-year Treasury note auction; Earnings from Burger King
WEDNESDAY: MBA mortgage applications, advance report on durable sales, new home sales, weekly oil inventories, 5-year Treasury note auction; Earnings from BHP Billiton, Toll Brothers
THURSDAY: Weekly jobless claims, 7-year Treasury note auction.
FRIDAY: GDP, corporate profits, consumer sentiment; Earnings from Tiffany
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