US Stocks Retreat After China Selloff

Stocks pulled back Monday as a major selloff in China set the stage for a rough day on the US markets.

The last trading day of August begins with some significant positives in the books: barring a major selloff Monday, the S&P 500 and the Nasdaq will chalk up their sixth straight monthly gains, and the Dow will have its fifth monthly gain in the past six months.

In the day's only economic news, business activity in the Midwest picked up at a faster pace than economists had expected: The Chicago Institute for Supply Management reported its gauge of business activity in the region rose to 50, right on the line between expansion and contraction, from 43.3 in July. It was the highest reading since September 2008. Economists surveyed by Reuters had expected the index to hit 48.

"The data was a couple points better than expected, but stock prices have already built in a lot of good news," Steve Goldman, a market strategist at Wedden & Co., told Reuters. "They've gone up about 54 percent since their lows, and it's unclear how much further they can go."

The big buzz of the morning was that Disney has agreed to buy comic-book titan Marvel Entertainment for $4 billion.

Shares of Marvel soared more than 25 percent on the news.

And Barron's said shares of battered insurer American International Group are overpriced. The stock has more than doubled in prices since a 1 for 20 reverse split on June 30.

Morgan Stanley shares were downgraded by Bank of America-Merrill Lynch, in part due to a belief that more investors are turning retail rather and institutional brokerages. BofA-Merrill also said Morgan's shares are no longer undervalued.

And Ford is ramping up production as new models have been well received, stirring speculation that it may eclipse Toyotafor the No. 2 spot.

The curious rise in government-sponosored entities Fannie Mae and Freddie Mac may be running out as well: FBR Capital said the August surge of the two stocks was based on specultation of a reverse stock split.

The economic calendar is relatively light, as investors look ahead to key readings later in the week such as Tuesday's August auto sales numbers and Friday's August employment report.

The Chicago Purchasing Managers Index is out at 9:45 am New York time, with economists looking for a reading of 48.0 vs. July's reading of 43.4.

The earnings calendar is virtually empty for this final day of August.

Barron's said video game publisher Activision Blizzard , home of the wildly popular "Guitar Hero" series, will benefit as the industry shifts from console games to online subscriptions.

A fall in energy prices also was weighing on the stock indexes. The price of US light, sweet crude dropped nearly $2 to below $71 a barrel.

Smallcap pharmaceutical Delcath Systems saw its shares soar after health regulators granted an orphan drug status to doxorubicin, a chemotherapy agent, for the treatment of primary liver cancer.

In deal news, Baker Hughes said it was buying oilfield services company BJ Services in a stock and cash deal worth $5.5 billion.

The deal represents a 16 percent premium over BJ's closing price Friday.

Some surveys of interest before the opening bell: Economists polled by The National Association for Business Economics say the U.S. does not need a second stimulus. Rather, they say the government should focus on cutting spending over the next few years.

And a Thomson Reuters survey says fewer Americans fear not being able to pay for health care services.

As the first anniversary approaches of the Lehman Brothers collapse, PriceWaterhouseCoopers says claims against Lehman could reach as much as $100 billion.

— Peter Schacknow contributed to this report.