Technology shares led the session's gains amid merger speculation in internet shares.
The Dow Jones Industrial Average finished down 13 points at 13,542, with 17 of its 30 components retreating. The drop was led by the likes of Alcoa Inc. , Coca Cola Co. , Dupont , Honeywell Inc. and Wal-Mart Stores .
While mergers and private-equity buyout activity continues at a neck-breaking pace, and with the market reaching new highs, some strategists worry that outside of large-cap stocks, the broad market is not advancing.
"The external 'noise' of mergers and deal making is hiding the deterioration underneath the markets," said Paul Nolte, director of investments at Hinsdale Associates. "This doesn't mean the markets decline immediately, but once they begin, the may fall further than many expect to repair the erosion that is occurring today."
General Electric Co. rose 0.4% after saying it will sell its GE Plastics business to Saudi Basic Industries Corp. for $11.6 billion. The $9 billion after-tax proceeds, GE said, will be used to buy back its shares.
AT&T dropped 1.3% after announcing a rebranding of its Cingular unit ahead of Apple Inc.'s launch of the iPhone.
Pfizer fell 0.1% after news that CFO Alan Levin is resigning, while its head of research and development, John LaMattina, will retire as soon as the New York drug giant finds a successor.
The S&P 500 index rose 2.3 points to 1,525, having earlier traded at 1,529, two points above its all-time record closing high reached in March 2000. The Nasdaq Composite gained 20.3 points to 2,578.
On the Nasdaq, Sirius Satellite , which has been recently hit by concerns that its merger with XM Satellite will hit regulatory hurdles, gained 2.2%.
Yahoo dropped 1.3%. It may pay $1 billion to buy Bebo, a leading U.K. social networking site, according to a report from a British newspaper.
And Google Inc. rose 0.1%. Google and Salesforce.com Inc., on business online service provider, are discussing an alliance to compete with Microsoft Corp. , The Wall Street Journal reported, citing people familiar with the matter.
Trading volumes showed 1.5 billion shares exchanging hands on the New York Stock Exchange and 1.9 billion trading on the Nasdaq stock market. Advancing issues outpaced decliners by 19 to 13 on the NYSE and by 20 to 9 on the Nasdaq.
Deals, deals, deals
The market is coming off a strong week in which the Dow rose 1.7% to a new record close, while the S&P 500 rose 1.1%.
The key fuel for the market's rally has remained deal-making.
On Monday, Alltel Corp. gained 6.7% after agreeing to be bought by TPG Capital and a Goldman Sachs unit for $27.5 billion, or $71.50 a share. That's a 10% premium to Friday's close and a 23% premium to Alltel's price before reports of a possible buyout first appeared.
In other deal news, UniCredit is buying Italian peer Capitalia in an all-stock transaction valued at over $29 billion. The deal will make UniCredit Europe's second-largest bank.
Hologic dropped 6.3% after it agreed to buy Cytyc for $6.2 billion, or $16.50 a share in cash and 0.52 of Hologic shares. The deal at a 33% premium to Friday's close will generate a leading provider of women's health services. Cytyc rallied 22.7%.
The bidding war for EGL continued with a group led by Apollo Management offering $47.50 a share in cash, trumping a $46.25 a share offer from a group led by EGL's chief executive.
Another deal had Atlas Energy Resources agreeing to buy 2,150 natural gas wells producing from the Antrim Shale, located in Michigan's northern lower peninsula, from DTE Energy fo $1.23 billion in cash.
Economy returns to backburner
A series of better-than-expected economic data recently has soothed investor concerns about a potential housing-led recession.
Industrial data, especially, "has lifted energy and basic materials stocks, as well as heavy industrial and large cap multinational stocks [on the Dow and S&P]," said Marc Pado, market strategist at Cantor Fitzgerald.
There's not much on the economic docket on Monday with statistics on housing sales and durable-goods orders due out later in the week.
The dollar rose against the yen and the euro, with the greenback strength coming even after Kuwait over the weekend abandoned the U.S. dollar peg.
Bonds rose slightly, with the benchmark 10-year Treasury bond adding 3/32 to close at 97 23/32, yielding 4.789%.
Crude oil futures rose $1.33 cents to close at $66.27 a barrel, as violence in Nigeria, Lebanon and Israel combined with concerns over U.S. gasoline supplies for the summer-driving season to lift crude's three-session win to 6%.
June gold futures rose $1.80 to close at $663.70 an ounce as oil rose.
Elan shares jumped 12.6% after the Irish drugmaker and Wyeth began a Phase III trial of an Alzheimer's drug candidate. There are two ongoing Phase 2 studies of the drug, and Elan cautioned that no conclusions can be drawn.
On the earnings front, Lowe's reported a 12% profit decline, citing the housing market and last year's hurricane rebuilding activities.
Merck president of global human health, Peter Loescher, is leaving to become chief executive of Siemens , the German industrial conglomerate. Merck didn't name a replacement.
By Nick Godt