"It's kind of a quiet day, with no economic numbers and earnings season is all but over," said Jay Suskind, director of trading at Ryan Beck & Co. "Chrysler is the news of the day. But even if it's always good to have [mergers], it was widely expected."
The Dow Jones Industrial Average still held slight gains, adding 9 points to 13,335, as 16 of its 30 components retreated.
General Motors Corp. , which had led the Dow higher, was off earlier highs but still gained 3.5% amid broad gains among auto stocks.
Also among blue-chips, Johnson & Johnson rose 0.7%. A court late Friday ruled that Teva Pharmaceutical infringed on a patent for Aciphex, an anti-ulcer drug co-marketed by Johnson & Johnson.
Wal-Mart Stores Inc. dropped 0.2%, while Home Depot Inc. gained 0.4%. Both will report earnings Tuesday.
The S&P 500 index dropped 3.7 points to 1,502, while the Nasdaq Composite fell 18.7 points to 2,543.
Trading volumes showed 1.3 billion shares exchanging hands on the New York Stock Exchange and 1.8 billion trading on the Nasdaq stock market. Declining issues topped gainers by 21 to 11 on the NYSE, and by 20 to 9 on the Nasdaq.
Big three deal
The distressed auto sector received a boost from the Chrysler deal, although it was widely expected.
Shares of parent DaimlerChrysler climbed 2.4%. The German automaker agreed to sell 80% of its U.S. unit -- while getting rid of its pension liabilities -- to Cerberus Capital Management, in return for an injection of $7.45 billion cash.
Ford Motor Co. , meanwhile, gained 4.3%. Ford's founding family is reportedly considering selling a controlling stake, according to a report from Bloomberg News.
Chrysler's sale to Cerberus also affected Magna International , which was one of the last bidder. Magna shares dropped 2.8%.
By sector, gold , multimedia networking and telecom shares were weak, while oil , biotechnology and pharmaceuticals advanced.
Tech shares were under pressure amid declines from the likes of Cisco Systems Inc. , Yahoo Inc. , Dell Inc. and Juniper Networks Inc. .
Nasdaq-listed Amgen Inc. , which was hit Friday after regulators asked for a stronger warning on its blockbuster anemia drugs, also continued to drop in heavy volume Monday.
Nokia Corp. rose 3.7% after lifting its outlook for the second-quarter. But the outlook, which rests partly on the mobile phone maker's ability to gain market share, hurt other telecom shares.
Deals, liquidity and the economy
The market has rallied impressively since mid-March, even amid slowing economic and earnings growth. Professional investors credit an impressive amount of global liquidity which continues to power stock prices through corporate share buy-backs, dividends, private equity buy-outs and mergers.
"The continued increase in stocks is flying in the face of a decidedly weakening economy," said Paul Nolte, director of investments at Hinsdale Associates.
"The flipside to the economic numbers has been the huge amount of merger news," Nolte said in a note. "Everyone is combing their favorite screens to ferret out the next possible takeover candidate."
In other deal news, Mylan Laboratories fell 12% as it beat out Teva Pharmaceutical, paying $6.7 billion for the generic drug-making arm of Merck KGaA.
And Cardinal Health said it would pay $42.75 a share, or $1.5 billion, for Viasys Healthcare , a 35% premium to Friday's close.
Running out of steam?
The market rallied on Friday - with the Dow industrials gaining 110 points - after wholesale inflation and weak retail sales boosted hopes the Federal Reserve wil eventually cut interest rates to boost a slowing economy.
Stocks have also rallied impressively since mid-March. But there are signs that the market may be running out of steam, according to Marc Pado, market strategist at Cantor Fitzgerald.
"This should be the start of the summer doldrums," he said. "It usually takes the entire month of May to see the trend established, but the market appears poised to start a small top and then the much-anticipated pullback."
With no economic data on Monday, investors prepared for the key consumer price index for April, to be released Tuesday, which will provide the latest snapshot on inflation. The Federal Reserve last week kept interest rates unchanged. Even as it noted slowing economic conditions, it indicated that inflation remains its primary concern, dashing market hopes that the central bank would eventually cut rates to boost the economy.
Crude oil rose 9 cents to close at $62.46 a barrel amid concerns over supply disruptions in Nigeria and tight U.S. gasoline inventories.
The dollar was mixed, falling against the euro but gaining ground against the yen.
Gold fell, erasing earlier gains amid dollar weakness and as crude oil weakened. June gold finished down $2.20 to close at $670.10 an ounce. Among metals mining shares, the likes of Hecla Mining Co. , Goldcorp Inc. , Gold Fields Ltd. and Freeport McMoRan all fell over 2%.
Treasury bonds fell ahead of the CPI, with the benchmark 10-year Treasury bond losing 4/32 at 98 16/32, yielding 4.689%.
By Nick Godt