"The market didn't have much follow-through to Friday's gains as crude oil is up again and bonds are flat to down," said Eliot Spar, market strategist at Ryan Beck & Co.
New concerns about subprime lending added to the dour tone.
The Dow Jones Industrial Average closed down 26.41 points to 13,613.07, as half of its 30 components retreated, including Honeywell Inc. and Procter & Gamble Co..
A notable gainer was Caterpillar Inc. , which struck an all-time high of $82.13 in intraday trade.
Among other blue chips, shares of Alcoa rose 0.9% to $41.96. A report in The Times [of London] newspaper said BHP Billiton Ltd. is reviewing plans to make an offer for the aluminum producer.
Dow component Wal-Mart Stores Inc. fell 0.5%. The giant retailer has asked a state court in Michigan to dismiss the lawsuit filed by fired advertising executive Julie Roehm, contending that she lives in Arkansas.
The S&P 500 fell 1.85 points to 1,531.06, while the Nasdaq Composite lost just 0.11 point to 2,626.60.
Among key technology shares, Google Inc. rose 1.9%. Ebay Inc. said it expects to keep advertisements off Google's search engine for about a week, as it tests how effectively they drive visitors to its auction site and produce sales.
Trading volumes showed 1.206 billion shares exchanging hands on the New York Stock Exchange and 1.732 billion trading on the Nasdaq stock market. Declining issues topped gainers by 17 to 15 on the NYSE and by 15 to 13 on Nasdaq.
Analysts said the market was in for some rather tepid price action, following the dramatic price swings seen recently. But the trading backdrop remains constructive.
"Stocks continue to plow through any news that comes their way -- neither good nor bad will keep prices down for long," said Paul Nolte, director of investments at Hinsdale Associates.
New data showed continuing deterioration in the housing market. The National Association of Home Builders said the outlook for home building is the worst in 16 years. The builders' housing market index fell by two points to 28 in June, the lowest since February 1991.
Worries about the subprime sector were back in focus after a Wall Street Journal report that a group of hedge fund managers at Bear Stearns are trying to line up new investors to keep a fund invested in subprime assets afloat. Shares of Bear Stearns ended 1.5% lower at $147.95.
Wendy's International stock dropped 3.7% to $38.26. The burger chain cut its earnings forecasts for the year and said a special committee of its board will explore a possible sale of the restaurant operator.
Boeing Co. was in focus as the Paris Air Show began, its stock ended down 0.27% at $97.40.
The aerospace giant inked two smaller deals for its jets, while rival Airbus won orders from Middle Eastern airlines Qatar Airways and Emirates as well as US Airways .
Yields on back burner?
Stocks rallied over the course last week, as investors cheered economic data pointing to tame inflation, which helped to contain a surge in bond yields. Higher bond yields provide an attractive alternative to riskier bets in the stock market, while also lifting borrowing costs for businesses and consumers.
Treasury prices ended higher after the data pointing to further weakness in housing. The benchmark 10-year Treasury bond finished up 4/32 at 95 1/32, while its yield rose to 5.147% from 5.17% at Friday's close.
In energy trading, the July crude futures contract finished sharply higher, stepping up the pressure on stocks. The contract finished up 1.6% at $69.09 a barrel, pressured by worries about a theatened strike by Nigerian oil workers. The close was the highest for the July contract since Sept. 18, 2006.
The BBC is reporting that militants are holding an oil station in Nigeria's Delta region.
Gold rose as well. The August futures contract gained $1.20 to finish at $659.90 an ounce.
After being eclipsed by rising bond yields in recent weeks, mergers and acquisitions returned as a catalyst for the market.
Yields and deals, meanwhile, are not unrelated.
"The enthusiasm for lower rates has less to do with the odds of a rate cut, and much more to do with 'borrowing costs,' " said Marc Pado, chief market strategist at Cantor Fitzgerald, in a note. "This bull market has been fueled by M&A activity. The fear is that higher rates might choke off borrowing and stem the tide of stock being taken private."
In another deal-related development, shares of Dow Jones & Co. , publisher of this report, rose 2 cents to $59.03. General Electric Co. and Pearson , publisher of the Financial Times, are in talks about potentially making a joint bid for the publishing company, according to The Wall Street Journal.
Such a bid would rival the $5 billion, $60-a-share proposal made by News Corp.
to acquire Dow Jones, whose flagship publication is the Journal.
Elsewhere, Nymex Holdings fell 1.2% to $140.43 after the Chicago Mercantile Holdings said it's not in talks to buy the New York commodities exchange.
By Leslie Wines