Stocks finished sharply lower Monday amid light volume as confidence about the economy weakened and investors remained cautious ahead of several key reports coming up this week.
The Dow Jones Industrial Averageshed 140.92 points, or 1.39 percent, to close at 10,009.73. Bank of America, Home Depot , and Intel were the biggest decliners on the Dow.
Hewlett-Packard was the only stock trading higher among the blue-chip index.
TheS&P 500 fell 1.47 percent while the Nasdaqslipped1.56 percent. The CBOE volatility index, widely considered the best gauge of fear in the market, jumped more than 11 percent to close above 27.
All S&P large-cap sectors were lower, led by financials, consumer discretionary and industrials.
The Dow, S&P 500 and Nasdaq ended last week with a rally after the Federal Reserve signaled it would take measures to support the recovery, if necessary. Still, the major indexes are on track to post a loss in August for the first time since 2005.
A key problem in the market is that the retail investor has withdrawn from the market, said Jeff Saut, chief market strategist at Raymond James.
"Just like we had an optimism bubble 10 years ago, we have a pessimism bubble today," Saut said.
Bank stocks were weak across-the-board, extending a trend evident all month, reflecting deep investor concerns with the sluggish US economy. The sector became the first of the 10 key S&P sectors to slip back into bear market territory.
Bank giants including Citigroup , WellsFargo and Bank of America fell more than 2 percent each.
Hewlett Packard's shares were up almost 2 percent after the company's board announced plans to buy back $3 billion in stockin the fourth quarter. Also, S&P Equity raised its price target on HP to $49 from $48. HP is the latest among 41 companies to announce stock buybacks, a move that usually inspires wider investor confidence in the stock market.
The computer maker is also in the middle of bidding war with Dell for 3Par , a utility storage provider. On Friday, HP raised its bid to $2 billion or $30 a share. Dell's latest bid was $27 a share.
Genzyme shares rose more than 3 percent after the pharmaceutical company's board unanimously rejected an $18.5 billion offer that translated into $69 per sharefrom Sanofi-Aventis. S&P Equity downgraded its rating on Genzyme to "hold" from "buy."
Elsewhere, Intel shares were lower after news that the tech giant will buy the wireless unit of German chipmakerInfineon for $1.4 billion in cash. The unit will be operated as a stand-alone business. In addition, at least six brokerages cut their price targets on Intel.
3M shares were down after the conglomerate said it would buy biometric identification systems company Cogent in a deal valued at more than $900 million. Cogent shares soared more than 20 percent following the news.
BHP Billiton said it would consider divesting several units of Potash if it is successful at acquiring the company.
And Cisco shares were down more than 2 percent following rumors that the Internet equipment maker has made an offer to acquire Skypebefore the firm completes their IPO process, according to TechCrunch.
Airline stocks were in focus following news that the Justice Department approved the merger between UAL's United Airlines and Continental Airlines after the airlines agreed to provide takeoff and landing slots at New Jersey's Newark Liberty Airport to Southwest Airlines . Shareholders are expected to approve the merger in September.
Walt Disney and Time Warner are making progress in a dispute that could result in Disney's ABC-TV and ESPN channels being blacked out on Time Warner cable systems, though the two sides are now expected to reach a dealwithout such an occurrence.
Also in the entertainment arena, the battle to dominate distribution of movies and TV on the Internet is heating up as Google’s YouTube negotiates with major film studios in Hollywood to offer a pay-per-view service this year.
The Justice Department, meanwhile, has some concerns with Comcast's bid to buy control of General Electric's NBC Universal division over how the merger may affect the Internet TV market, according to the Wall Street Journal. (GE is the parent company of CNBC.)
Meanwhile, BlackBerry maker Research In Motion will give India access to secure data from Sept. 1, according to government sources.
In the day's economic news, the Commerce Department said consumer spending rose 0.4 percentafter being flat in June. The results were better than the 0.3 percent rise estimated by analysts polled by Reuters. Personal incomes rose 0.2 percent in July.
The labor market will be in heavy focus this week with the big monthly government jobs data scheduled for Friday.
In addition, the Institute for Supply Management releases its monthly manufacturing survey Wednesday, which has an employment component to it. Payroll company ADP also releases its data on private jobs growth Wednesday.
And the Labor Department reports its weekly report on jobless claims Thursday.
On Tap This Week:
TUESDAY: S&P/Case-Shiller home price index; consumer confidence index, FOMC minutes
WEDNESDAY: August auto sales; weekly mortgage applications; Challenger job-cut report; ADP employment report; ISM mfg index; construction spending; weekly oil inventories; Fed's Fisher speaks; Apple event
THURSDAY: August chain store sales; weekly jobless claims; productivity and costs; factory orders; pending home sales
FRIDAY: August jobs report; Fed's Lockhart speaks; ISM services index
More From CNBC.com: