"Weaker-than-expected Bank of America profits deterred investor hopes that companies may escape the difficulty of the global credit markets," said Nicholas Mosley, an analyst with Wachovia Corp.
The Dow Jones Industrial Average fell 24.34 points to 12,825.02, with 16 of its 30 components settling lower.
Caterpillar Inc. was among the blue chips posting declines, its stock down 2.3%, as well as Bank of America , its stock off 2.5% after it reported a first-quarter earnings drop of 77%.
Earlier, the Financial Times reported that the Charlotte, N.C.-based banking giant is planning to sell part of its 9% stake in China Construction Bank in a bid to shore up its balance sheet.
General Motors Corp. led the Dow's advancers, with stock of the automaker rising 5.7%.
The S&P 500 Index declined 2.16 points to 1,388.17, dragged down by the financial sector, which fell 1.9%, and utilities, off 0.7%.
Energy was among three advancing sectors of the S&P, gaining 0.9% as crude prices surged to new record highs.
On the New York Mercantile Exchange, crude-oil futures rose 79 cents to end at a new record closing price of $117.48 a barrel, after hitting an intraday high of $117.76 earlier on. .
Information technology also edged higher, up 0.6%, while consumer staples gained as well, with the sector climbing 0.1%.
The Nasdaq Composite Index reversed course on earlier declines to end 5.07 points ahead at 2,408.04, bolstered by the likes of Apple Inc. , up 4.4%, and Texas Instruments Inc. , up 3.3%.
Texas Instruments delivers its first-quarter results after the close, while Apple reports its results on Wednesday.
Volume on the New York Stock Exchange topped 3.3 billion, and for every seven stocks on the rise roughly nine declined. On the Nasdaq, more than 1.6 billion shares were exchanged, and decliners outdid advancers 5 to 4.
Wall Street rallied Friday, cheered by upbeat earnings from Google Inc. and writedowns from Citigroup Inc. that weren't as bad as some had feared.
Monday's banking news was less welcome.
Shares of National City Corp. were down 27.6% after the Wall Street Journal said that the company is close to finalizing a capital infusion of more than $6 billion from a private-equity firm and a number of large shareholders.
In other earnings news, Merck & Co. announced that first-quarter net income surged 94% to $3.3 billion, or $1.52 a share. Adjusted to exclude special items, Merck posted income of 89 cents a share, topping the 86-cent consensus.
Also in health care, Eli Lilly & Co. said that first-quarter net income roughly doubled to $1.06 billion, or 97 cents a share, up from $508.7 million or 47 cents a share earned a year earlier, driven by increased sales of Cialis and Cymbalta.
Asian markets strengthened across the board , while European equities lost ground. .
By Kate Gibson