Bank stocks continued to be among the hardest hit after the FBI raided two hedge funds, Diamondback Capital Management and Level Global Investors, run by former managers of SAC Capital in connection with a widening probe into insider trading, according to the Wall Street Journal.
Federal prosecutors are expected as soon as this year to unveil a new series of insider trading cases against hedge fund traders, consultants and Wall Street bankers, several lawyers familiar with the investigations said.
Goldman Sachs tumbled more than 4 percent after the banking giant was among companies cited in a report on the probein the Wall Street Journal on Saturday. The newspaper said prosecutors and regulators were looking at whether Goldman leaked information about transactions.
And the introduction of new Basel IIIglobal 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 JPMorgan. Morgan Stanley also skidded.
Retailers were among the best performing stocks, 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 almost 10 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.
Most apparel retailers rose on Monday. Zumiez , JCrew , DSW and Buckle wereamong the best performers.
Barron's reported Monday that Wal-Mart stock was a better value than its rival, Target. Target shares fell.
Meanwhile, Wal-Mart said it will match rivals' prices on Black Friday, upping the ante in the battle to win sales on what is considered to be the kick-off to the U.S. holiday shopping season and a gauge of how overall holiday retail sales will shape up.
And Amazon.com launched an application on Apple's iPhone that it said allows shoppers to compare prices on a given item in brick-and-mortar stores with prices on its own website and gives them the option to instantly order the item through Amazon.
On the earnings front, Tyson Foods rose after the multinational food company delivered strong results. The firm gained from higher prices in most of its businesses, and was helped by a successful hedge on costs for grain.
Tech giant Hewlett-Packard is expected to report earningsafter-the-bell tonight. Wedbush raised its rating on the firm to "outperform" from "neutral."
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.
Shares of SanDisk jumped more than 5 percent after Robert W. Baird upgraded the stock to "outperform" from "neutral" and raised its price target to $56 from $42, projecting better prices for the company's flash memory cards heading into next year.
In other tech news, shares of Cirrus Logic soared after Jefferies raised the semiconductor maker's shares to "buy" from "hold," saying the company is well-positioned to hold its market share with Apple, its largest customer, and to increase prices.
Shares of Netflix also jumped after the subscription movie service said it will begin offering a monthly subscription planfor streaming content over the Internet.
In M&A news, Boeing was slightly lower after news it would acquire Summit Aeronautics Group. Terms of the transactions were not disclosed.
Oil and gas exploration company Energy XXI agreed to buy nine ExxonMobil oil and gas fields in the shallow waters of the Gulf of Mexico for $1.01 billion, increasing the company's reserves and production by more than 70 percent.
Humana advanced after the health insurer said it plans to purchase privately-held health care company Concentra for $790 million in cash.
Meanwhile, pharma giant Genzyme said it is exploring a new deal structure that might help break a months-long acquisition deadlock with Sanofi-Aventis , according to the Wall Street Journal.
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.
Green Mountain Coffee Roasters skyrocketed more than 15 percent after news the coffee company closed an internal investigation that found it misstated its financial results for nearly the past four years because of reporting errors.
Treasury prices roseafter the government auctioned $35 billion of 2-year notes, which had a yield of 0.520 percent and a bid-to-cover ratio of 3.70. Auctions of 5-year and 7-year notes were expected on Tuesday and Wednesday, respectively.
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.
"Furthermore, once Thanksgiving week is over, the market resumed its year-to-date direction," White said. "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."
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.
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 coalition.
European shares closed lower on concerns about the spread of Ireland's debt troubles to other nations, with banking stocks leading the declines.
On Tap This Week:
MONDAY: 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: