Stocks started February in the red amid worries about the fate of the stimulus plan and the economy but pared their losses after a better-than-expected reading on the manufacturing sector.
The morning slide put the Dow Jones Industrial Average back below 8,000 and follows the worst January on record that piled another heap of losses onto last year's carnage.
The Dow lost 9 percent during January, while the S&P fell 8.8 percent and the Nasdaq slipped 6.5 percent. Many analysts believe that a poor performance in January spells weakness for the year as a whole.
After a report Friday showed the economy contracted at its fastest pace in 27 years during the fourth quarter, today's economic news was mixed.
The Institute for Supply Management reported its gauge of manufacturing activity contracted for a 12th straight month in January, though the reading of 35.6 came in better than expected. Construction spending fell 1.4 percent in December, much more than expected, and November was revised to show a decline double of what was previously reported.
The first economic indicator of the day was a wash: Consumer spending fell 1 percent in December, as expected. Income fell 0.2, half of the 0.4-percent decline expected, but November income was revised lower by exactly the same amount that December beat.
The buzz on the market floor was that traders don't think the government stimulus package will stimulate the economy.
"It's not going to produce a lot of jobs and will cost the taxpayer a lot of money," Art Cashin, director of floor operations at UBS, told CNBC.
Hugh Johnson, chairman and chief investment officer of Illington Advisors, agreed.
"The markets are sending a very defensive signal ... Right now, the answer is [that there's] not much evidence this is going to work," Johnson said.
Financials were mostly lower amid worries that the so-called "bad bank" plan is faltering, with Bank of America, which would have a lot to gain from getting some of the Merrill load off its books, leading Dow decliners.
But Hartford Financial led the Nasdaq gainers after Barron's on Sunday wrote that the company is a "compelling buy" on expectations that it will rebound as the value of its bond holdings recovers.
That, coupled with some strength in techs, helped push the Nasdaq into positive territory.
But another rough batch of earnings reports kept a lid on the rest of the market.