Stocks pared losses, although remained lower, after rallying for most of the session as investors hesitated to commit to the market ahead of Tuesday’s mid-term election and the Federal Reserve's decision on monetary policy.
The Dow Jones Industrial Average fell about 15 points, after rising about 125 points earlier in the session and then falling about 55, following the best October performance in four years.
Kraft , Chevron, and Alcoa fell, while Intel rose.
The S&P 500 Index and the Nasdaq also declined. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 22.
Utilities, financials and consumerdiscretionary sectors led the market decline.
Monday's market rally started after news that Chinese manufacturing was surprisingly strong,rising to a six-month high. That was followed by a surprisingly strong reading onmanufacturing data in the U.S.
But the dollar firmed against the eurofollowing the robust manufacturing data, helping to keep some of the market gains in check.
Investors are awaiting a key decision on Federal Reserve policy, expected Wednesday, and the October jobs report on Friday.
Banks fell after a report by ProPublica that JPMorgan and Magnetar, a hedge fund, are being investigated by the Securities and Exchange Commission. The Keefe Bruyette Woods Bank Index fell more than 1 percent.
The mid-afternoon turn in the market was most likely also due to several other factors, including investors taking advantage of a boost in stocks to sell and reap gains.
"If you had positions and you wanted to sell into strength, it was the perfect opportunity," according to Todd M. Schoenberger, managing director of LandColt Trading.
Historically, going back over the last 10 years, stocks have risen 80 percent of the time on the first trading day of the week when it coincides with the first trading day of the month, as it did today, Schoenberger said.
That precedent aided stocks this morning. But the market is still experiencing a tug-of-war between bulls and bears, and with so much uncertainty in the market ahead of the elections and the Fed policy meeting, investors are more comfortable on the sidelines.
"A lot of the 'undecideds' are there, so people don’t know what the next 48 hours are going to bring," Schoenberger said.
Perhaps the biggest question this week centers on the Fed's decision over how much monetary stimulus, or quantitative easing,to provide the economy, said Craig Peckham, equity product strategist at Jefferies & Co.
"It's not a question of whether you get quantitative easing, but a question of how much, over what time line," Peckham said. He added that Jefferies strategists said the Fed meeting will provide the central bank authorities with an opportunity to more explicitly target what they want to see in the economy before declaring their monetary stimulus program to be a success.
In another raft of earnings reports out Monday, Baker-Hughes shares rose to the top of the S&P 500 after the oilfield-services company reported third-quarter earnings that were four times higher on strong growth from its North American business, and the acquisition of BJServices.
Loews posted a smaller-than-expected profit, as its commercial insurance affiliate took a large loss on a deal to lay off asbestos risks.
Cooper Tire & Rubber rose after the tire company posted a better-than-expected quarterly profit, as strong pricing boosted its North American tire segment, and said it expects to increase production by 10 percent in 2011.
Shares of Humana rose slightly after the health insurer posted an unanticipated spike in third-quarter profit thanks to lower medical costs, and higher membership in its Medicare plans.