"It's kind of a quiet day, with no economic numbers and earnings season is all but over," said Jay Suskind, director of trading at Ryan Beck & Co. "Chrysler is the news of the day. But even if it's always good to have [mergers], it was widely expected."
The Dow Jones Industrial Average reversed early gains, and was last down 18 points at 13,308, as 19 of its 30 components retreated.
General Motors Corp. , which had led the Dow higher, was off earlier highs but still gained 3.2% amid broad gains among auto stocks.
Also among blue-chips, Johnson & Johnson rose 0.7%. A court late Friday ruled that Teva Pharmaceutical infringed on a patent for Aciphex, an anti-ulcer drug co-marketed by Johnson & Johnson.
Wal-Mart Stores Inc. dropped 0.5%, while Home Depot Inc. gained 0.4%. Both will report earnings Tuesday.
The S&P 500 index dropped 5 points to 1,500, while the Nasdaq Composite dropped 20.6 points to 2,541.
Trading volumes showed 937 million shares exchanging hands on the New York Stock Exchange and 1.3 billion trading on the Nasdaq stock market. Declining issues topped gainers by 21 to 10 on the NYSE, and by 20 to 9 on the Nasdaq.
Big three deal
The distressed auto sector received a boost from the Chrysler deal, although it was widely expected.
Shares of parent DaimlerChrysler climbed 2%. The German automaker agreed to sell 80% of its U.S. unit -- while getting rid of its pension liabilities -- to Cerberus Capital Management, in return for an injection of $7.45 billion cash.
Ford Motor Co. , meanwhile, gained 4%. Ford's founding family is reportedly considering selling a controlling stake, according to a report from Bloomberg News.
Chrysler's sale to Cerberus also affected Magna International , which was one of the last bidder. Magna shares dropped 2.3%.
By sector, gold , multimedia networking and telecom shares were weak, while oil , biotechnology and pharmaceuticals advanced.
Tech shares were under pressure amid declines from the likes of Cisco Systems Inc. , Yahoo Inc. , Dell Inc. and Juniper Networks Inc. .
Nasdaq-listed Amgen Inc. , which was hit Friday after regulators asked for a stronger warning on its blockbuster anemia drugs, also continued to drop in heavy volume Monday.
Nokia Corp. rose 3.3% after lifting its outlook for the second-quarter. But the outlook, which rests partly on the mobile phone maker's ability to gain market share, hurt other telecom shares.
Deals, liquidity and the economy
The market has rallied impressively since mid-March, even amid slowing economic and earnings growth. Professional investors credit an impressive amount of global liquidity which continues to power stock prices through corporate share buy-backs, dividends, private equity buy-outs and mergers.
"The continued increase in stocks is flying in the face of a decidedly weakening economy," said Paul Nolte, director of investments at Hinsdale Associates.
"The flipside to the economic numbers has been the huge amount of merger news," Nolte said in a note. "Everyone is combing their favorite screens to ferret out the next possible takeover candidate."
In other deal news, Mylan Laboratories fell 11.8% as it beat out Teva Pharmaceutical, paying $6.7 billion for the generic drug-making arm of Merck KGaA.
And Cardinal Health said it would pay $42.75 a share, or $1.5 billion, for Viasys Healthcare , a 35% premium to Friday's close.
Running out of steam?
The market rallied on Friday - with the Dow industrials gaining 110 points - after wholesale inflation and weak retail sales boosted hopes the Federal Reserve ill eventually cut interest rates to boost a slowing economy.
Stocks have also rallied impressively since mid-March. But there are signs that the market may be running out of steam, according to Marc Pado, market strategist at Cantor Fitzgerald.
"This should be the start of the summer doldrums," he said. "It usually takes the entire month of May to see the trend established, but the market appears poised to start a small top and then the much-anticipated pullback."
In other markets, crude oil also reversed early gains to fall 2 cents to $62.35 a barrel. Oil earlier rose amid concerns over supply disruptions in Nigeria and tight U.S. gasoline inventories set a bullish tone.
The dollar was mixed, falling against the euro but gaining ground against the yen.
Gold was lower, erasing earlier gains amid dollar weakness and as crude oil weakened. A barrel last traded down 6 cents at $62.31 a barrel.
Treasury bonds were slightly lower, with the benchmark 10-year Treasury bond down 3/32 at 98 16/32, yielding 4.690%.
By Nick Godt