"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 for the first in five sessions, with the blue-chip index recently down 58.30 points to 12,791.06, with 20 of its 30 components trading lower.
Caterpillar Inc. fronted blue-chip declines, its stock down 2.3%.
General Motors Corp. led the Dow's advancers, with stock of the automaker rising 4.7%.
The S&P 500 Index declined 6.81 points to 1,383.52, dragged down by the financial sector, which fell 1.6%.
Energy was the only advancing sector of the S&P, gaining 0.6% as crude prices surged to a new record high of $117.60 a barrel.
In recent trade on the New York Mercantile Exchange, crude futures fell 43 cents to $116.26 a barrel. .
The Nasdaq Composite Index gave up 2.42 points to 2,400.55.
Volume on the New York Stock Exchange came to 1.4 billion, while 663 million shares were traded on the Nasdaq. Declining stocks outpaced those advancing nearly 9 to 5 on the NYSE, while decliners topped advancers roughly 3 to 2 on the Nasdaq.
Wall Street rallied Friday, cheered by upbeat earnings from Google Inc. and write-downs from Citigroup Inc. that weren't as bad as some had feared.
Monday's banking news was less welcome.
Bank of America Corp. reported a first-quarter earnings drop of 77% to $1.21 billion, or 23 cents a share, as its provision for credit losses climbed and it posted $2.72 billion in net charge-offs.
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.
The newspaper also reported that Bank of America would exercise options to buy more shares in the Chinese bank at below the market rate, and that it's in talks to sell its equities prime brokerage unit to BNP Paribas.
Shares of National City were down 21.6% 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.
Among other companies due to report results Monday, Texas Instruments Inc. is expected by analysts to report a first-quarter profit of 43 cents a share after the close.
Shares of Texas Instruments were recently up 1.7%.
Asian markets strengthened across the board overnight, while European equities lost ground, with the French CAC 40 recently down 1%.
By Kate Gibson