Stock indexes pared early losses of more than 1 percent. Some retreat was to be expected after investors sent the Dow Jones industrial average soaring to a two-month high on Friday; investors are wary about pouring more money into the battered market with economic data still generally weak.
Investors were relieved Monday, however, after the Commerce Department said construction spending dropped by 0.6 percent in November, half the 1.3 percent decline Wall Street expected.
The market also looked to Washington for direction on the economy. Obama urged congressional leaders on Saturday to work quickly on economic measures that aides say could cost as much as $775 billion, including a reported $300 billion in possible tax cuts.
"There is some optimism out there that there is going to be a massive stimulus package by Obama that is going to get passed and that will help the economy," said Greg Church, chief investment officer of Church Capital Management in Yardley, Pa.
Church warned, however, that a recovery will be difficult.
"The economy is still very weak. Unemployment is still high and is likely to get worse," he said. "This first six months is going to be a roller coaster. I just think we're in a little bit of a positive mode here."
Despite Monday's early selling, investors are hopeful that the market's strength over the past several sessions can continue. Last week's advance came as many traders were on vacation, making trading volume light and some of the market's moves less convincing.
"We had a good tone coming out of the year," said Richard E. Cripps, chief market strategist for Stifel Nicolaus, but "not all participants were involved. What we're looking to see is how much of those gains we give back."
In midday trading, the Dow Jones industrial average fell 76.70, or 0.85 percent, to 8,957.99 after losing as much as 121 in the early going.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 2.55, or 0.27 percent, to 929.25, and the Nasdaq composite index fell 6.82, or 0.42 percent, to 1,625.39.
The Russell 2000 index of smaller companies fell 1.56, or 0.34 percent, to 504.14.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 535.5 million shares.