Stocks slumped as a lack of positive news failed to counter worries about Europe's efforts to address debt problems in Ireland as well as other periphery euro zone countries.
TheDow Jones Industrial Average fell more than 80 points, after ending flatlast week.
Bank of America, JPMorgan and General Electric led blue-chips lower. Hewlett-Packard and Merck rose.
The S&P 500 and the Nasdaq fell. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 19.
Most S&P sectors were lower, led by financials, energy and industrials.
Volume this week was expected to be light as the Thanksgiving holiday approaches. For the last five years in a row, stocks moved counter to their year-to-date direction in this week, Rocky White, a senior quantitative analyst at Schaeffer's Investment Research pointed out in a note to clients on Monday.
"Furthermore, once Thanksgiving week is over, the market resumed its year-to-date direction," White wrote. "Since the market is up so far in 2010, if that tendency continues, we will see a pullback for the week of Thanksgiving, and then the market heading higher for the rest of the year."
Ireland agreed to a bailout over the weekend, but worries over the health of other periphery euro zone countries persisted, and volatility within the Irish government gave investors pause. Ireland's Green Party may call for elections in January, disrupting Ireland's government coaltion.
European shares rose on news of Ireland's three-year debt deal, which was agreed over the weekend, with banking stocks leading the gains.
The dollar was lower against the euro and yen , which gave a boost to the price of oil and gold.
In other news, Federal authorities could be in the brink of launching a batch of insider-trading cases against the hedge-fund industry, consultants, and Wall Street banks, sources familiar with the situation confirmed with Reuters.
Goldman Sachs , was leading the S&P lower after being among companies cited in a report on the probein the Wall Street Journal. The newspaper said prosecutors and regulators were looking at whether Goldman leaked information about transactions.
And the introduction of new Basel III global banking regulations could cause a shortfall of between $100 billion and $150 billion in the top 35 U.S. banks, according to Barclays Capital.
The news pressured Wells Fargo and Citigroup , as well as Bank of America and JP Morgan.
Retailers were among the best performing stocks on Monday, boosted by report of strong sales earlier this month, as the S&P RetailIndex rose. Most retail categories rose from a year ago, according to MasterCard's SpendingPulse national survey of aggregate retail and services sales. Apparel sales rose 9.7 percent in the pre-holiday season through Nov. 13 from a year earlier, up from an 8.2 percent year-over-year rise in October, according to the survey.
On Monday, stocks of most apparel retailers were higher, with Zumiez , J Crew , DSWand Buckle among the best performers.
On the earnings front, Tyson Foods will be among the handful of companies reporting earnings before the opening bell, while Hewlett-Packard will issue results after the close.
Novell shares advanced to lead the S&P 500 after reports the software company would be acquired by Attachmate, a group of three private-equity firms, for about $2.2 billion. The deal will allow Novell to expand its product offerings to information security and cloud computing.
Green Mountain Coffee Roasters skyrocketed more than 15 percent, after news the coffee company restatement of earnings to correct for accounting errors wasn't as bad as initlaly thought.
Shares of Netflix also jumped as the subscription movie service begins offering a monthly subscription plan for streaming content over the Internet.
Wal-Mart rose and Target fell after a report in Barron's Monday that Wal-Mart's stock was a better value than its rival.
GM was down slightly on its third day of trading since the automaker returned to the public markets. GM unveiled its first car under the Baojun brand in China on Monday, going head-to-head against local companies.
Boeing was slightly lower after news it would acquire Summit Aeronautics Group. Terms of the transactions were not disclosed.
The U.S Treasury will sell $99 billion in note auctions over three days, beginning with a $35 billion auction of 2-year notes today. The results will be available after 1 p.m.
The economic calendar will heat up Tuesday, with the release of the Federal Reserve Open Market Committee's latest minutes, existing home sales, and a reading on third-quarter GDP. No releases were scheduled for today.
On Tap Next Week:
MONDAY: 2-yr note auction, Minnesota Fed Pres Kocherlakota speaks; Earnings from Hewlett-Packard
TUESDAY: GDP, corporate profits, existing home sales, 5-yr note auction, FOMC minutes, FDIC quarterly report on bank earnings; Earnings from Campbell Soup and Medtronic
WEDNESDAY: MBA mortgage apps, durable goods orders, personal income and spending, jobless claims, consumer sentiment, new home sales, oil inventories, 7-yr note auction; Earnings from Deere and Tiffany
THURSDAY: Thanksgiving Holiday — All markets closed
FRIDAY: Black Friday — NYSE early close
More From CNBC.com: