The Dow Jones Industrial Average was down 53 points, or 0.4%, at 13,311, but was off its triple-digit decline earlier in the session. International Business Machines led the downturn as its shares fell 1.8% to $108.14 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 losses in crude-oil futures. Crude ended Monday's session down 2 cents at $95.98 but soared 57% for the year.
The broader S&P 500 fell 4 points to 1,472.12, and the Nasdaq Composite lost 13 points to 2,661.40.
There was "lack of liquidity and lack of participants" in the market, 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.
Interest-rate policymakers cut the benchmark interest rate by a quarter-point to 4.25% and expressed growing concerns about the outlook for economic growth.
Equity trading will be closed Tuesday for the New Year's Day holiday.
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 Steve Goldman, chief market strategist at Weeden & Co.
For the year so far, the Dow is up more than 7%, with a 35% jump for industrial conglomerate Honeywell International Inc. offsetting a 47% downturn by Citigroup.
Concerns about a sharp economic slowdown in 2008 and a possible worsening of subprime-mortgage related events "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 broader S&P 500, which is weighted toward financials, is up more than 4%, while the tech-heavy Nasdaq Composite has climbed 11% on gains by heavyweights such as Apple Inc. , Research In Motion and Google Inc.
But Google shares were down $5.60, or 0.8%, at $696.34 Monday. The company is in talks with newspaper publishers to sell space in their pages to online clients, according to a report in the Sunday Times of London.
On the New York Stock Exchange, more than 1.3 billion shares traded hands. On the Nasdaq, more than 869 million shares were traded. Decliners outpaced advancers by 13 to 10 on each on of the exchanges.
In focus on Monday were shares of Delta Petroleum Corp. , which shot up 20% to $18.70 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 1.7% to $53.88. The financial giant is reportedly in talks with foreign investors to raise more capital as it shores up losses on mortgage-related assets.
Shares of Chinese Internet search engine and Nasdaq 100 component Baidu.com fell 1.2% to $393.89 following newsover the weekend that Chief Financial Officer Shawn Wang died in an accident on Dec. 27.
Meanwhile, Vonage Holdings jumped 12.5% to $2.25 after it said it settled a patent dispute with Nortel Networks .
Gold futures finished 0.6% lower on 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 4.039%.
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