The Fed is expected to signal on Wednesday that it may not be cutting interest rates for much longer.
"All eyes are trained on the Fed's policy statement on Wednesday to see how strongly it hints at a pause in the easing cycle after an expected 25 basis-point rate cut to 2.0%," said Sal Guatieri, economist at BMO Capital Markets.
Economic data, meanwhile, may reveal that the U.S. economy is in a recession. On Wednesday, first-quarter gross production data may reveal the economy already has contracted. On Friday, investors expect jobs data to reveal another big drop in payrolls in April.
The Dow Jones Industrial Average ended down 20 points at 12,871, with 17 of its 30 components ending in the red, led lower by Microsoft Corp. , Dupont and AIG .
The three-week deadline that Microsoft Corp. gave Yahoo Inc. to come to an agreement on its unsolicited bid for the Web portal passed without any announcement from either side, leading to the possibility that the battle for Yahoo is about to turn hostile.
Verizon Communications Inc. was amongst the biggest gainers among blue chips, rising 2.5% after reporting a 10% profit rise, helped by the performance of its Verizon Wireless unit, in which it holds a 55% stake.
General Motors Corp. rose 2.6%. Shares of GM rival Ford Motor Co. gained 9.5%, after Kirk Kerkorian's Tracinda announced it planned to offer $8.50 per share for up to 20 million of its shares.
Away from the Dow, shares of Wrigley jumped 23% to $76.91 lifting the consumer-staples sector and, earlier, the broader market. Privately held Mars and Warren Buffett's Berkshire Hathaway said they would buy the chewing-gum maker for about $23 billion, or $80 a share.
The S&P 500 Index finished down 1.5 points, or 0.1%, at 1,396, while the Nasdaq Composite Index rose 1.4 points, or 0.1%, to 2,424.
Crude futures finished slightly higher, gaining 23 cents to $119.90 a barrel, after earlier hitting a new high of $119.93 a barrel, boosted by a refinery strike in the United Kingdom and violence in Nigeria. The energy sector of the S&P 500, however, gave up its early gains.
Attention turns this week to the Federal Reserve, days away from a possible quarter-percentage point rate cut.
Two-thirds of respondents to a money manager poll from Ried Thunberg Icap think the FOMC will signal a pause in rate cuts is likely after making a quarter-point cut Wednesday.
"The Fed will likely point to ongoing inflation concerns, which have been receiving a great deal of attention recently," said Bob Doll, global chief investment officer at BlackRock.
Stocks on the move
In other news, Continental Airlines Inc. fell 1.5% after the company said it has no plans to merge with another airline, apparently scuttling rumors of a possible deal with United Airlines parent UAL Corp. . Both Continental and UAL shares dropped more than 5% in premarket trade.
UAL is continuing merger discussions with US Airways Group , The Wall Street Journal reported.
By Nick Godt