Stock losses accelerated toward the close, with the market taking little comfort in a report that existing-home sales rose slightly last month.
The Dow Jones Industrial Average fell 101 points, or 0.8%, at 13,264.82, led by International Business Machines , which lost 1.8% following a report that it's in talks to buy Israeli storage-technology company XIV for $300 million to $350 million.
AT&T Inc. shares dragged 1.7%, and Exxon Mobil shares slumped 1.3% as they tracked minor losses in crude-oil futures. Crude futures, however, climbed 57% for the year.
The broader S&P 500 , which is weighted toward financials, fell 10 points to 1,468.36 on Monday, and the Nasdaq Composite lost 22 points to 2,652.28.
The benchmark indexes slumped in the fourth quarter. The Dow fell 4.5%, the S&P fell 3.8% and the Nasdaq lost 1.8%. For December, the Dow shed 0.8%, the S&P shed 0.9%, and the Nasdaq gave up 0.3%.
There was "lack of liquidity and lack of participants" in Monday's session, said Stephen Sachs, head of trading at Rydex Investments. But he expected that to change when investors return Wednesday for the first day of trading in 2008.
"It's a pretty important day. We'll get the Federal Open Market Committee minutes from the previous meeting, which is going to hold great interest for everybody," he said. Equity trading will be closed Tuesday for the New Year's Day holiday.
As 2007 came to a close, concerns about a sharp economic slowdown in 2008 and a possible worsening of subprime-mortgage related crisis remained at the fore.
They "are still surfacing in regards to financials and are overshadowing the lower interest-rate environment that we've had over the past couple of months," said Steve Goldman, chief market strategist at Weeden & Co.
The Federal Reserve earlier this month cut the benchmark interest rate by a quarter-point to 4.25% and expressed growing concerns about the outlook for economic growth.
A report released Monday by the National Association of Realtors showed some improvement in the housing sector. The blue-chip index briefly pared losses after the report showed sales of existing homes rose 0.4% in November to a seasonally adjusted annualized rate of 5 million, in line with expectations by economists surveyed at MarketWatch.
Sales were down 20% in the past year and were down 31% from the peak of 7.21 million two years ago.
But the nascent equity comeback fizzled as "the housing data was roughly in line. It's not off consensus and it's not likely to change the scenario," about weakening in the economy, said Goldman.
The blue-chip index -- which marked the crossing of both the 13,000 and 14,000-point levels for the first time this year -- closed 2007 with a 6.4% gain. In 2006, the index jumped 16.3%.
Honeywell International Inc. was the Dow's strongest performer for the year, with a 36% increase in its shares to end at $61.57.
Citigroup shares suffered the worst performance in the blue-chip index. Its shares tumbled 47% to end at $29.44.
The banking giant was "the poster boy" for this year's subprime-market meltdown and subsequent credit crisis, said Goldman.
For the year, the S&P 500 rose 3.5%, its smallest gain since a 3% rise in 2005.
The Nasdaq Composite was the standout, up 9.8% for its strongest finish in four years thanks in large part to heavyweights such as Apple Inc. , Research In Motion and Google Inc. .
The title for best performing stock of the Nasdaq-100 in 2007 belongs to Baidu.com . The Chinese search engine shares leaped $277.11 to end at $389.80. However, they ended the session down 2.3% following news over the weekend that Cief Financial Officer Shawn Wang died in an accident on Dec. 27.
The worst performing stock in the Nasdaq-100 was Level 3 Communications , which fell $2.56, or 45.7%, to $3.04.
In focus on Monday were shares of Delta Petroleum Corp. , which shot up 21% to $18.85 following plans by Kirk Kerkorian's Tracinda to buy 35% of the company for $684 million, or $19 a share. The investment is at a 23% premium to Friday's close.
Merrill Lynch shares erased losses to climb 1.3% to $53.68. The financial giant is reportedly in talks with foreign investors to raise more capital as it shores up losses on mortgage-related assets.
Meanwhile, Vonage Holdings jumped 15% to $2.30 after it said it settled a patent dispute with Nortel Networks .
Gold futures finished 0.6% lower Monday, but leaped 31% this year to $838 an ounce.
Treasury prices were higher, shrugging off the slight increase in existing-home sales. The yield on the benchmark 10-year note was down to 4.022%.
The dollar was mostly higher, gaining against the euro but slipping against the Japanese yen.
Overseas, the KSE-100 in Karachi finished with a loss of 4.7% on the first day of trading since Pakistan opposition leader Benazir Bhutto was assassinated Thursday.
Stocks in Europe closed 2007 with their first annual loss in four years.
By Carla Mozee