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%, to 10,812.04, after rising nearly 2% in the previous session, and after four weeks of gains.
The S&P 500 fell 6.51 points, or 0.6%, to 1,142.16, while the Nasdaq fell 11.45 points, or 0.5%, 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.
Among the slew of M&A deals, Southwest Airlines jumped 8.7% 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 61.3%.
Rival airline companies, including JetBlue and AMR also rose, up 7.1% and 1.1% respectively. JetBlue also got a boost from a Barron's article that said earnings-per-share for the airliner could continue rising.
Unilever rose 1.2% after the Anglo-Dutch multinational firm agreed to buy hair care group Alberto Culver for $3.7 billion in cash to boost its personal care business. Alberto Culver's shares surged 19.6%.
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 25.2% but Wal-Mart lost 1.1%.
General Electric bought an initial chunk of a 20% stake in NBC Universal from Vivendi for $2 billion, the French conglomerate said. Vivendi added it would sell its remaining 12.34% in the media group after the approval of Comcast's takeover of NBC Universal. GE and Comcast both fell 1.4%. 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 ended flat even though 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. Dr Pepper Snapple shares slipped 0.4% while Coca-Cola Enterprises added 1.3%.
Shares of Best Buy fell 0.4% 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. Sanofi-Aventis lost 1.8% and Genzyme declined 0.6%.
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.
Meanwhile, the government may miss its deadline to 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% 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. M&T Bank slumped 7% while Banco Santander rose 1.2%.
Also, global stock underwriting proceeds fell 9% so far in 2010 to $496.14 billion for far this year from $544.96 billion. The number of deals, however, rose 5.6% 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. But its shares still slipped 0.4%.
Oracle shares were flat after Barclays raised its price target on the firm to $34 from $31. And HP advanced 0.7% after Gleacher & Co resumed its coverage of the firm with a "buy" rating.
Baidu shares climbed 6.1% after Pacific Crest lifted its price target on the Chinese search engine giant to $140 from $80.
NetApp shares slid 2% 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.
On the energy front, Harvest Natural Resources shares advanced 14.8% after the independent energy company said it would consider a sale or merger.
Also, Gulf Resources gained 12.3% 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. its shares ended 1.8% lower.
JB Hunt fell 2.8% after Bank of America Merrill Lynch downgraded the trucking and transportation company to "neutral" from "buy."
Gold powered to a record high near $1,300 an ounce as investors poured cash into the market on worries about global economic health. Meanwhile, oil fell below $76 a barrel.
In the day's economic news, about 70% 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.