"General Electric and Wachovia have set the tone for earnings season but the market is still not falling apart," said Peter Cardillo, chief market economist at Avalon Partners.
"The perception that this earnings season is not going to be good and that we'll get negative guidance is already largely priced in," he said.
After flirting with positive territory earlier on, the Dow Jones Industrial Average finished down 23 points at 12,302, with 17 of its 30 components ending lower.
Blue-chip losses were fronted by financials, with Bank of America Corp. off 3.7%, American Express Co. off 1.5%, and Citigroup Inc. down 3.6%.
The S&P 500 Index shed 4.51 points at 1,328, while the Nasdaq Composite Index was down 14.42 points to 2,275.
Financials led declines on the S&P, with the sector off 2.5%, followed by information technology, off 0.68%, and consumer discretionary off 0.66%.
Chip-maker and technology bellwether Intel Corp. is set to report earnings on Tuesday.
The energy sector fronted gains, up 2.3%, while telecommunications and industrials both edged up about 0.2%.
On the New York Mercantile Exchange, crude oil futures gained $1.62, or 1.5%, to end at $111.76 a barrel, after rising to an intraday high of $111.99, close to its record high of $112.21 hit last week. .
Elsewhere on the Nymex, gold futures gained $1.70 to end at $928.70 an ounce. .
Volume on the New York Stock Exchange topped 1.2 billion, with declining stocks outpacing advancers more than 4 to 3. On the Nasdaq, 565 million shares traded hands, and declining stocks bested those advancing 3 to 2.
In another sign of trouble in the embattled financial sector, Wachovia said that it would raise $7 billion in capital and slash its dividend after posting a $350 million first-quarter loss. .
"Wachovia's not great news, but it certainly shouldn't catch us by surprise -- we know what business they're in," said Art Hogan, chief market strategist at Jefferies.
Shares of Circuit City Stores Inc. rose 27% after the consumer-electronics retailer said it is reviewing a take-out offer of at least $6 a share from Blockbuster Inc.
Blockbuster shares fell 10%.
Hogan likened the proposed merger as akin to "two drunks trying to hold each other up."
Philips Electronics NV slid 2.7% after the Dutch conglomerate reported a 750% drop in first-quarter profit. .
Ahead of the opening bell, U.S. stock futures trimmed their losses after the Commerce Department reported a slight rise in March retail sales, topping the flat expectations of analysts. .
"This report highlights that the consumer is facing a number of strains from higher energy prices to a weakening labor market," Lehman Brothers economist Drew Matus wrote in a research note.
Other economic data Monday had U.S. business inventories rising 0.6% in February from a revised 0.9% increase in January. .
In overseas trade, European shares fell for the fifth straight session. .
Asian markets also declined, with Shanghai-listed shares the hardest hit. .
On Friday, Wall Street took its largest hit in three weeks after bellwether General Electric surprised investors by reporting a 6% profit drop in the first quarter, and by lowering its forecast for the rest of the year.
By Kate Gibson