Dow Snaps 3-Day Win Streak; Apple Drops 2%

Stocks finished lower Monday, with the tech-heavy Nasdaq tumbling more than 1 percent, ahead of the Federal Reserve's decision and a German constitutional court ruling on whether Germany may contribute to the euro zone's rescue fund.

Stocks traded around the flatline for most of the session as investors took a breather following last week's sharp rally that propelled the S&P 500 to highs not seen since January 2008.

Shortly after the closing bell, Zynga announced that its chief marketing officer Jeff Karp has left the company. The announcement comes about a month after COO John Schappert's departure from the struggling social media gaming company. Zynga shares fell in regular-hours trading and have tumbled more than 70 percent year to date.

S&P 500

The Dow Jones Industrial Average snapped a three-day rally, sliding 52.35 points, or 0.39 percent, to close at 13,254.29. Intel and BofA led the blue-chip laggards.

The S&P 500 erased 8.84 points, or 0.61 percent, to end at 1,429.08. The Nasdaq slumped 32.40 points, or 1.03 percent, to finish at 3,104.02.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped near 16.

Nearly all key S&P sectors closed in negative territory, led by techs, while telecoms squeezed out small gains. Telecoms have been the best sector performer in the last six months, surging approximately 20 percent.

“It’s both logical and optimal to have a day to drive into a wait and see mode after last week’s very strong moves,” said Art Hogan, managing director of Lazard Capital Markets.

European shares ended lowerahead of the Dutch elections on Wednesday and the German Constitutional Court meeting with the troika of international lenders (the ECB, the European Commission and the International Monetary Fund) to discuss the legality of the permanent euro zone bailout fund. (Read More: Meet the Man Who May Decide Whether the Euro Will Survive)

Global shares surgedlast week to multi-year highs after the ECB confirmed it will purchases bonds of struggling euro zone countries to bring down their borrowing costs. And a dismal August jobs report raised hopes the Federal Reserve will enact further stimulus measures when it meets on Wednesday and Thursday this week. (Read More: Markets Crave Stimulus—Will the Fed Give Them Their Fix?)

“As we head into the Fed meeting, there’s an overarching consensus belief that we’re going to hear a new round of QE,” noted Hogan, who warned that the market is “well positioned for the other direction” if the central bank disappoints.

Also putting a damper on stocks, China posted weaker-than-expected trade data and poor industrial outputgrowth in August, fanning new worries over the global economic outlook.

Last week, Chinese regulators approved $157 billion worth of infrastructure projects, but economists warned that without further policy stimulus, Asian powerhouse nation may miss its 7.5-percent growth targetfor 2012.

Meanwhile, some strategists called for near-term pullbacks following the multi-year highs.

"While we are bullish on equities for the long term...upside for the remainder of the year may be limited," wrote Savita Subramanian, head of U.S. equity and quantitative strategy at BofA Merrill Lynch. "In our view, the next few months hold several macro risks for equity investors, including potential for negative economic surprises as uncertainty around the fiscal cliff dampens economic activity, ongoing tensions in the Middle East, potential for more downward estimate revisions, and continued uncertainty around Europe/EM."

AIG declined after the Treasury Department said it will sell most of its stake in the insurer, making the government a minority investor for the first time since it bailed out the company nearly four years ago.

BP said it will sell some of its deep-water Gulf of Mexico oil and gas properties to Plains Exploration & Production in a deal worth $5.6 billion. Raymond James raised its price target on BP to $44 from $42.

Meanwhile, Transocean said it is selling 38 of its shallow-water rigs to Shelf Drilling International for about $855 million.

Among techs, Intel fell for a second day to lead the Dow laggards after the company lowered its third-quarter revenue forecastlast week due to softer-than-expected demand for its chips. At least three brokerages cut their price targets on the firm.

Hewlett-Packard gained after the hardware and software maker said it will slash 29,000 jobs by October 2014, more than the 27,000 cuts it previously announced.

Apple pulled back after earlier hitting an all-time high of $683.29 a share ahead of its event on Wednesday where the tech giant is expected to unveil the iPhone 5.

On the economic front, consumer credit shrank by $3.28 billion in July, falling unexpectedly for the first time in almost a year, according to the Federal Reserve. Economists had expected an advance of $9.1 billion.

By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

TUESDAY: NFIB small business optimism index, McDonald's August sales, international trade, 3-yr note auction, Intel developers forum
WEDNESDAY: Weekly mortgage apps, import & export prices, wholesale trade, oil inventories, 10-yr note auction, crop outlook report, Apple iPhone 5 event, FOMC meeting begins
THURSDAY: Jobless claims, PPI, 30-yr bond auction, FOMC mtg announcement, FOMC forecasts, Bernanke press conference; Earnings from Pier 1 Imports
FRIDAY: CPI, retail sales, industrial production, consumer sentiment, business inventories, FDA decision on Truvia

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