Stocks lost ground in the last half hour of trading and closed near the lows of the session Monday amid light volume and a flurry of merger and acquisition activity.
The Dow Jones Industrial Average fell 48.22 points, or 0.4 percent, to 10,812.04, after rising nearly 2 percent in the previous session, and after four weeks of gains.
Bank of America, Travelers JP Morgan led the laggards, while AT&T and American Express rose.
The S&P 500 fell 6.51 points, or 0.6 percent, to 1,142.16, while the Nasdaq fell 11.45 points, or 0.5 percent, to 2,369.77.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 22.
Financials, industrials and health care sectors declined, while telecom and utilities rose.
The market weakness was most likely a temporary pause as investors regroup from the significant gains of last week, said Jeffrey Saut, chief market strategist at Raymond James
"We broke out of the May through September trading range that we’d been in, and we broke out with some vigor," Saut said and added that stocks could rise to levels in April, when the Dow was above 11,000, and the S&P 500 Index was at 1,217.
On the other hand, Elliot Spar, market strategist at Stifel Nicolaus, said third-quarter earnings were likely priced into stocks during the September run-up. Prices could move a bit higher, but at this point, in the short term, he sees "limited upside."
Spar said if earnings are in line with expectations, then the market is unlikely to move higher because people are not going to "pay up for in-line earnings with the economy slowing." As a result, Spar said investors should "take profits here and do some hedging."
Among the slew of M&A deals, Southwest Airlines jumped after the airline firm said it would buy AirTran in a deal valued at about $1.4 billion, or $7.69 a share. AirTran shares soared over 60 percent. Rival airline companies, including JetBlue and AMR also rose. JetBlue also got a boost from a Barron's article that said earnings-per-share for the airliner could continue rising.
Unilever rose after the Anglo-Dutch multinational firm agreed to buy hair care group Alberto Culver for $3.7 billion in cashto boost its personal care business.
Wal-Mart is in talks to buy South Africa's Massmart for $4 billion. The deal would give the U.S. retail giant a bigger presence in fast-growing Africa and bolster its emerging markets strategy. Shares of Massmart soared over 20 percent.
General Electric bought an initial chunk of a 20 percent stake in NBC Universal from Vivendi for $2 billion, the French conglomerate said. Vivendi added it would sell its remaining 12.34 percent in the media group after the approval of Comcast's takeover of NBC Universal. CNBC is a unit of NBC.
And over the weekend, Comcast announced that Chief Operating Officer Steve Burke would take the top job at NBC Universal when the deal closes.
Coca-Cola rose after the beverage giant won approval from the U.S. and Canada to buy the North American operations of its largest bottler on the condition that it safeguards rival Dr Pepper Snapple's confidential business information. The next step would be for shareholders of the bottler, Coca-Cola Enterprises , to approve the deal in a vote scheduled for Oct 1.
Shares of Best Buy fell slightly despite a report in Barron's that the stock is still cheap, and that the electronics retailer has done a good of job of exploiting new products and adding market share.
Sanofi-Aventis, meanwhile, was searching for more financing toward its $18.5 billion bid for Genzyme .
Financial stocks mostly slipped as concern remains about the health of Europe's banking sector.
Earlier, Moody's Investors Service downgraded the unguaranteed senior debt of Anglo Irish bank, triggering concern among some investors about the health of European debt. While the euro fell against the dollar, Spar at Stifel Nicolaus said the move was minimal and was not likely to be affecting U.S. stocks.
In addition, Susquehanna cuts its third quarter views for Goldman Sachs , Morgan Stanley , Bank of America , PNC and Citigroup , citing weak underwriting and trading volumes.
Meanwhile, the government may miss its deadlineto sell all of its Citigroup shares by the end of the year. As a result, the Treasury may have to offer shares to the public from its 17 percent stake instead of selling small quantities of stock in the market, bankers and analysts said.
M&T Bank was the worst performing stock on the S&P 500 Index, after news the bank's efforts to buy Banco Santander have stalled.
Also, global stock underwriting proceeds fell 9 percentso far in 2010 to $496.14 billion for far this year from $544.96 billion. The number of deals, however, rose 5.6 percent to 2,817 deals compared with a year earlier as banks have been willing to underwrite smaller offerings. JPMorgan was the top underwriter.
In technology news, advance orders for the Apple iPhone 4 exceeded 200,000 in China, after the handset launched on Saturday, according to China Unicom. The tech company also got a boost after Canaccord Genuity raised its price target for Apple to $366 from $356.
Oracle shares were flat after Barclays raised its price target on the firm to $34 from $31. And HP advanced after Gleacher & Co resumed its coverage of the firm with a "buy" rating.
Baidu shares climbed after Pacific Crest lifted its price target on the Chinese search engine giant to $140 from $80.
NetApp shares slid after JPMorgan removed the data storage company from its focus list, and raised its price target for the company to $58 a share from $49.
Sprint Nextel rose after UBS recommended the telecom giant as a "short-term buy."
On the energy front, Harvest Natural Resources shares advanced after the indepdendent energy company said it would consider a sale or merger.
Also, Gulf Resources gained after the company said it would buy back $10 million in stock.
Progress Energy shares were briefly halted after triggering a single-stock circuit breaker. A spokesman for Progress Energy said the company was looking into the matter.
JB Hunt fell after Bank of America Merrill Lynch downgraded the trucking and transportation company to "neutral" from "buy."
Volume on the consolidated New York Stock Exchange was light at 3.5 billion shares. On the NYSE floor, 920 million shares changed hands, with decliners outpacing advancers about 5 to 4.
Meanwhile, Treasury prices rose after the government auctioned $36 billion of 2-year notesat the lowest yields on record at 0.441 percent.
Auctions of 5-year notes and 7-year notes are expected on Tuesday and Wednesday, respectively.
Gold powered to a record high near $1,300 an ounceas investors poured cash into the market on worries about global economic health. Meanwhile, oil fell below $76 a barrel.
Monday's market action probably reflected profit taking ahead of the end of the third quarter on Thursday, and before Friday's economic data on personal income and personal consumption, and manufacturing, said Peter Cardillo, chief market economist at Avalon Partners.
Cardillo is also waiting for Tuesday's reading on consumer confidence. A positive number, combined with window dressing by portfolio managers before the third quarter ends Thursday, could move stock prices higher, he said.
In the day's economic news, about 70 percent of respondents to a CNBC survey said the Federal Reserve will begin quantitative easing, while 80 of those believe the easing will start before the end of the year. The economists, strategists and fund managers surveyed say the Fed will boost its balance sheet by about half a trillion dollars over a six-month period, beginning in November.
Several initial public offerings are due this week, including one from Liberty Mutual Agency, an insurance group that plans to offer 64 million shares between $18-$20 per share, in what could be the biggest IPO of the year.
On Tap For This Week:
TUESDAY: S&P/Case-Shiller home price index; Richmond Fed survey; consumer confidence index; 5-year note auction; Atlanta Fed Pres Lockhart speaks; Barnes & Noble shareholder meeting; HP analyst meeting
WEDNESDAY: Weekly mortgage applications; oil inventories; Minneapolis Fed Pres Kockerlakota speaks; Philadelphia Fed Pres Plosser speaks; Boston Fed Pres Rosengren speaks; 7-year note auction
THURSDAY: Reading on GDP; Weekly jobless claims; Corporate profits; Chicago PMI; Hearing on J&J recalls
FRIDAY: Personal spending; NY Fed Pres Dudley speaks; Consumer sentiment; ISM manufacturing index; Construction spending; Monthly auto sales; BP's Hayward steps down
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