Stocks ended narrowly mixed in a choppy session Monday, after another downgrade of Greece's credit rating offset gains from a flurry of M&A activity and as investors continued to worry over a slowing global recovery ahead of a handful of key economic news throughout the week.
The Dow Jones Industrial Average flirted with the psychologically-important 12,000 mark throughout the day, but failed to close above the mark, squeezing out a gain of 1.06 points or 0.01 percent to finish at 11,952.97.
Defensive stocks led the blue-chip gainers with Pfizer and BofA , while Alcoa and Hewlett-Packard slipped.
The S&P 500 gained 0.85 points, or 0.07 percent, to close at 1,271.83, while the tech-heavy Nasdaq slipped 4.04 points, or 0.15 percent to end at 2,639.69.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, gained slightly to trade above 19.
Among key S&P sectors, banks and telecoms finishedhigher, while energy tumbled.
The economic growth could remain soft for some time, according to Richmond Fed President Jeffrey Lacker.
"One striking observation that may be relevant to the possibility that growth underperforms for a sustained period is the apparent reluctance of many employers to add workers in the face of rising demand," Lacker said at a business conference.
Widely-followed economist Nouriel Roubini said there is a chance that the Federal Reserve may unleash a new round of money printing by the end of the year.
The head of Roubini Global Economics told CNBC the probability of QE3 will become “significantly higher” if U.S. economic weakness persists and the stock markets correct 10 percent or more.
Meanwhile, Standard & Poor's cut Greece's credit ratings by three notches, saying the nation is increasingly likely to restructure its debt in a way the ratings agency would consider a default. Greece is now the country with the lowest credit rating in the world.
Greece responded by saying the move overlooked intense deliberations at the EU and IMF to find a solution to the ongoing debt crisis.
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Banks rebounded, led by Citigroup, Wells Fargo and Morgan Stanley , after being one of the worst performing sectors in the previous week.
HSBC said it will run down its credit card business in the U.S. if it cannot find a buyer as the bank tries to cut costs and reduce retail banking.
Some of the major U.S. banks are getting ready to cut their exposure to U.S. Treasurys in August, when a deadline for an agreement on raising the debt ceiling expires, the FT reported.
Meanwhile, oil prices were mixedwith U.S. light sweet crude fell $1.99, or 2 percent, to settle at $97.30 a barrel, while London Brent crude gained 32 cents, or 0.27 percent to settle at $119.10 .
Most energy stocks declined—Weatherford International and NaborsIndustries both slipped more than 4 percent. Major oil giants including ExxonMobil and Chevron also ended lower.
Stocks jumped at the open helped by a handful of M&A news: Allied World Assurance said it would buy Transatlantic Holdings for $3.2 billion in stock, and both companies said the transaction is structured as a merger of equals.
And Timberland skyrocketed more than 40 percent after VF said it would acquire the shoemaker for $2 billionto boost its outdoor and action sports business.
And EMS Technologies jumped more than 30 percent after Honeywell said it is acquiring the firm for about $491 million in cash to improve its presence in the mobile and satellite communications business.
Meanwhile, Graham Packaging soared more than 15 percent after the packaging products maker said it received an unsolicited buyout offer from a third party, valuing the firm at $1.64 billion. The offer follows Silgan's $1.3 billion offer in April.
M&A activity this year has been robust—almost 37 percent from 2010. So far, the total deal value is worth over $472 billion year-to-date and 2011 is on track to be the first $1 trillion year since 2007.
Wendy's/Arby's gained after the fast-food chain announced it will sell its struggling Arby's Restaurant to Roark Capital Group for about $130 million in cash. Wendy's/Arby's will retain 18.5 percent ownership of Arby's valued at about $30 million, the firm said in a statement.
Chipmakers were under pressure after Baird cut its price target on Texas Instruments and Broadcom . Meanwhile, Marvell declined after CEO Sehat Sutardja said microchips are becoming more expensive to produce due to the weakening dollar and rising gold prices, according to the Wall Street Journal.
Pfizer gained ahead the company's court appearance this week to extend Viagra's patent through 2019. The drug accounts for about $1 billion in sales a year for the pharmaceutical giant.
Meanwhile, GlaxoSmithKline and Valeant gained after the FDA approved the firms' new epilepsy drug Potiga.
Sears rose, building on gains made last week amid speculation of some short-covering. However, the retailer gave a gloomy first quarter outlook over the weekend.
Meanwhile, Autonation plunged to lead the S&P laggards.
Ford slipped after the automaker was ordered to pay nearly $2 billion to dealers as a result of a class action lawsuit accusing the automaker of overcharging dealers on sales of commercial trucks.
On the IPO front, Facebook is likely go public in the first quarter of 2012, with a valuation that could top $100 billion, CNBC learned.
Gold tumbled $13.60, or 0.9 percent, to settle at $1,515.60 an ounce near $1,515 an ounce after the euro eased against the dollar.
Volume was light with trading on the consolidated tape of the NYSE was at 3.85 billion shares, while 908 million shares changed hands on the floor.
European shares closed higher, bouncing from selloffs in the previous week. In the meantime, European policymakers appeared no closer to finalizing an agreement over whether private investors would take part in a restructuring of Greek debt.
On Tap This Week:
TUESDAY: NFIB small business optimism index, PPI, retail sales, business inventories; earnings from Best Buy
WEDNESDAY: Weekly mortgage apps, CPI, Empire state mfg survey, Treasury international capital, industrial production, housing market index, Geithner testifies before House Financial Services, oil inventories, credit card default rates reported, Dell shareholder mtg, Google Chromebook goes on sale
THURSDAY: Housing sales, jobless claims, current account, Philadelphia Fed survey, Fed's Fisher speaks, money supply; earnings from Kroger, Pier 1 Imports, Smithfield Foods, Research In Motion
FRIDAY: Consumer sentiment, leading indicators, quadruple witching
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