Traders also mentioned news that China has raised a tax on investments in order to curb speculation in its stock market.
"We've got very light volumes so it's hard to make out any trends," said Jay Suskind, director trading at Ryan, Beck & Co. "But anything having to do with China will spook the market."
The Dow Jones Industrial Average was down 24 points to 13,482, led lower by 18 of its 30 components. Gainers included the likes of IBM , Microsoft Corp. and Verizon Communications .
Also among blue chips, shares of Alcoa Inc. dropped 1.4%. Last week, Alcan Inc. turned down Alcoa's $28.5 billion hostile bid.
On Tuesday, Alcan gained as much as 2% after reports that Norsk Hydro and Rio Tinto are now considering making bids for the Montreal-based aluminum producer.
General Motors Corp. slumped 1% amid reports that BMW is interested in buying Ford Motor Co's Volvo unit.
The S&P 500 fell 1.59 points to 1,514, while the Nasdaq Composite gained 5.6 points to 2,562.
Among tech shares, Google Inc. gained 0.8%, even after news that the Federal Trade Commission has begun a preliminary antitrust probe into its planned $3 billion deal to buy online advertiser DoubleClick.
Trading volumes showed 964 million shares exchanging hands on the New York Stock Exchange and 1.1 billion on the Nasdaq stock market. Advancing issues outpaced gainers by 18 to 13 on the NYSE and by 16 to 13 on the Nasdaq.
By sector, multimedia networking , telecoms and airlines led the gains, while oil and pharmaceuticals dropped.
Stocks briefly jumped higher in morning trade after news that consumer confidence bounced back in May. The Conference Board's consumer confidence index rose to 108.0 in May from 106.3 in April. Economists expected the index to rise to 105.8.
But it was merger news that again set the stage for the market rally to continue.
"We're mostly focusing on the many deals that have been announced," said Art Hogan, chief market strategist at Jefferies & Co. "The world is awash with liquidity and that is what is driving us."
Leading the flow of deal news, the Royal Bank of Scotland-led group officially launched an offer for ABN Amro in a deal valued at $95.5 billion. That offer is higher than a rival all-stock offer from Barclays . RBS said it had "amicable" talks with Bank of America about a settlement over its disputed purchase of LaSalle from ABN Amro.
Economy back in play
Investors will also have to face a raft of key economic data later this week, culminating with the employment report on Friday.
"It's an abbreviated week but there's a lot on the plate," said Peter Cardillo, chief market economist at Avalon Partners.
"This is a market that's going to focus more on the economic data," he said. "Good economic data can be perceived negatively in the short term as it would decrease the odds of the Fed cutting rates."
A slowing economy had boosted hopes that the Federal Reserve will cut interest rates this year but stronger-than-expected manufacturing data recently has revived concerns that the central bank will stay on the sidelines, or even consider raising rates.
On Thursday, the revision to the first quarter GDP may also spook investors. Economists surveyed by MarketWatch on average expect the GDP to be revised down to 0.7% from 1.3% previously.
Crude oil futures were falling sharply, with the front-month contract down $1.57 at $63.63 a barrel. Nigerian oil workers have called off a strike and several refineries, including three in the Gulf Coast, are coming back on line.
Treasury prices were slghtly lower, sending yields a bit higher, after the consumer confidence data. The benchmark 10-year Treasury note last was down 5/32 at 97 1/32 with a yield of 4.884%.
The dollar was under pressure against its major rivals in early trade. It last traded down 0.08% at 121.52 yen as the euro rose 0.4% to $1.3510.
Gold also rose amid dollar weakness signs of investment demand for the precious metal. Gold futures were up $2.40 at $657.70 an ounce.
Archstone-Smith is close to a $20 billion deal under which it would be acquired by Tishman Speyer and Lehman Brothers .
Bradley Pharmaceuticals jumped more than 20% after its chief executive bid to take the company private for $21.50 a share, a 17% premium over its Friday closing price.
Avaya gained 14% following news reports that some private equity firms would like to buy it.
In completed deals, URS Corp. agreed to buy engineering and design company Washington Group in a stock-and-cash deal worth $2.6 billion.
By Nick Godt