Stocks slumped after opening higher as the dollar rose, but trading was light at the start of a holiday week.
The Dow Jones Industrial Average fell more than 40 points, as the market struggled to hold on to strong December gains. Through last Friday,the Dow had gained nearly 4.5 percent for the month, and more than 10 percent for the year-to-date, while the S&P 500 Index was trading at a 52-week-high, up more than 5 percent for the month and 11.55 percent for the year-to-date.
American Express, Boeing and Wal-Mart led blue chips lower, while Bank of America and JPMorgan rose.
The S&P 500 and the Nasdaq also fell. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 16.
The Nasdaq was up nearly 6 percent for December, and 16.5 percent for the year-to-date.
Among key S&P 500 sectors, industrials, technology and health care fell, while financials and utilities rose.
The dollar rose against a basket of foreign currencies as the euro struggled against the Swiss Franc amid continuing euro zone debt concerns.
Energy shares were up slightly as oil prices traded around $88 a barrel, although crude oil prices slipped slightly in morning trading. Meanwhile, Bank of America Merrill Lynch is forecasting oil could rise to $118 to $120 a barrel.
Conoco Philips , Marathon Oil and Valero all gained.
Chesapeake Energy advanced more than 5 percent after news Carl Icahn has built a 5.8 percent stake in the natural gas producer. In a Securities and Exchange Commission filing, Icahn said the shares were undervalued.
Coal mining stocks, meanwhile, rose after FBR Capital Markets raised Consol Energy , Cloud Peak Energy and Patriot Coal to "outperform" from "market perform," citing rising demand. FBR also raised Halliburton to "outperform" from "market perform," saying it expected the oil services firm to gain market share.
In corporate news, AT&T shares rose slightly after news the telecom giant plans to buy acquire wireless spectrum licenses from Qualcomm for $1.9 billion to boost its high-speed, next-generation "4G" network. Qualcomm's shares also gained.
Raytheon plans to acquired Applied Signal Technology , a move that will allow the defense contractor to expand its intelligence products. Applied Signal makes communication interception gear.
Sara Lee slipped after news over the weekend that the food maker has is been discussing a sale with Brazilian meat producer JBS, but the companies haven't been able to reach an agreement.
American Express sank after Stifel Nicolaus downgraded the financial services company to "hold" from "buy," citing the effects of proposed limits to debit-card interchange fees.
Boeing sank despite news the aircraft maker plans to boost production of 777 airplanes.
Medtronic shares rose after news CEO William Hawkins will retire in April or until a successor is foiund.
In tech news, NetApp shares jumped after news Stifel Nicolaus raised the data management company's shares to "buy" from "hold."
And Research in Motion slipped despite Nomura raising the Blackberry maker's price target to $65 from $60 a share, and Raymond James raising its price target to $77 from $75 a share.
Sony said it expected to miss its sales target of 25 million LCD TVs for the year to March 2011 Sunday.
Retail apparel and department stores were mostly lower Monday despite a strong holiday sales weekend, although consumer stocks have had a strong run lately.
Saks , Macy's and Target fell, while Kohls rose. Among specialty apparel retailers, Abercrombie & Fitch ,Limited and J Crew slumped, while Urban Outfitters and Gap rose.
On the earnings front, Jefferies Group gained after reporting better-than-expected earnings in the fiscal fourth quarter, and declaring a quarterly dividend of $0.075 a share.
Adobe Systems and Darden Restaurants will report eanrings after the closing bell.
And the Senate is set to vote Tuesday on the government spending bill. Senate Majority Leader Harry Reid said a compromise had been reached among Senate leaders ahead of the vote.
European shares were making modest gains, with automobile and utility companies seeing strength. Nervousness surrounding the region's debt situation remained, with the European Central Bank expressing "serious concerns" because of the Irish bailout. Meanwhile, the ECB's Jean-Claude Trichet said countries must do more to individually tackle the crisis.
Airline stocks, such as British Airways and Air France, were down as many Western European airports were all but closed by snow and freezing cold weather.
Asian stocks closed mostly lower as tensions between North and South Korea re-emerged following live firing drills carried out by South Korea in a disputed area. North Korea, however, said it would not respond to the "reckless" military drills.
On the Calendar This Week:
MONDAY: Earnings Adobe Systems.
TUESDAY: FCC votes on net neutrality; earnings from ConAgra and Nike.
WEDNESDAY: MBA mortgage applications, GDP, existing home sales, oil inventories; before-the-ell earnings from Walgreen; after-the-bell earnings from Bed, Bath & Beyond.
THURSDAY: NYSE early close; durable goods orders, personal income and spending, weekly jobless claims, consumer sentiment, new home sales.
FRIDAY: Markets closed for Christmas.
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