The market seesawed early in the session as investors were torn between hopes for the financial industry and fears about the broader economy's slide. But stocks turned moderately lower in the afternoon, following a now familiar pattern where short-lived bursts of optimism give way to concerns about the country's economic woes.
With little in the way of corporate and economic news, investors floundered.
"There is really not very much for the market to sink its teeth into," said Steve Sachs, director of trading at Rockville, Md.-based Rydex Investments.
Financial stocks, however, were the one exception, maintaining their early gains as other industries faltered. Banks rallied on a news report that Bank of America could raise capital in the private sector. Shares of major banks have been pummeled to multiyear lows amid growing concern that they don't have enough cash to cover future losses despite multiple government rescues.
"Any bank right now that can raise money in the private sector, that is a major positive for the market," said Quincy Krosby, chief investment strategist at The Hartford. "It's another way to raise capital rather than the government infusing capital into the banks."
Among the day's downbeat news, newspaper publisher McClatchy Co. said it plans to eliminate 1,600 jobs, or 15 percent of its work force, as it battles declining advertising revenue.
Investors were also mindful of remarks from billionaire investor Warren Buffett, who said during an appearance on CNBC that the economy hasover the past six months. He noted that consumers have changed their habits in remarkable ways.
According to preliminary calculations, the Dow Jones industrial average fell 79.89, or 1.21 percent, to 6,547.05.
The Standard & Poor's 500 index fell 6.85, or 1.0 percent, to 676.53, while the Nasdaq composite index fell 25.21, or 1.95 percent, to 1,268.64.
The Russell 2000 index of smaller companies fell 7.62, or 2.2 percent, to 343.43.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.07 billion shares.
Both the Dow and the S&P 500 have fallen more than 24 percent this year. The Dow is at its lowest level since the spring of 1997, and the S&P 500 is at its lowest point since September 1996.
The Nasdaq, meanwhile, is at a six-year low.
"This market is rudderless," said Jon Biele, head of capital markets at Cowen & Co. "There's a complete lack of direction. I think (investors) are just trading positions."
"Any type of news we get, the market is just skeptical," he said. "There is nothing in the near term that is going to ratchet us to a different higher level."
Earlier Monday, drugmakers Merck and Schering-Plough announced a $41 billion deal. Merck & Co. has offered Schering-Plough shareholders $10.50 in cash and just over half of one Merck share for each of their shares. The price represents a 34 percent premium to Schering-Plough's closing stock price on Friday. While a combination between the two companies had long been speculated, news of the merger was nonetheless a good sign that big deals can still get done in this environment.
Merck dropped $2.13, or 9.4 percent, to $20.61, while Schering-Plough rose $2.35, or 13.3 percent, to $19.98.
The Wall Street Journal reported that Genentech's board is close to striking a deal for a $95-per-share sale to Switzerland-based Roche, the company's cancer drug partner. Genentech rose $1.92, or 2.1 percent, to $92.78.
Bank of America shares soared 52 cents, or 16.6 percent, to $3.66. Wells Fargo & Co. jumped $1.44, or 16.7 percent, to $10.05.
In other financial news, Capital One Financial Corp. became the latest bank to slash its dividend, following JPMorgan Chase & Co., Wells Fargo & Co. and others. The lender said it will reduce its dividend by 87 percent to 5 cents to help preserve capital. Capital One rose 44 cents, or 5.3 percent, to $8.75, after earlier falling as low as $7.80.
General Electric Co. rose after a spokesman for the conglomerate confirmed that its GE Capital lending arm is selling debt under a federal liquidity program. The company, which often trades in line with financial stocks, rose 33 cents, or 4.7 percent, to $7.39.
Investors also awaited news about the nation's automakers. Members of the Obama administration's auto task force are scheduled to meet with General Motors Corp. and Chrysler LLC executives Monday in the Detroit area and tour their facilities.
The government could recall its $17.4 billion in loans to GM and Chrysler if they fail to sign deals for debt restructuring and other concessions from stakeholders by March 31. GM and Chrysler are seeking $21.6 billion in additional aid to execute turnaround plans submitted last month.
GM rose 20 cents, or 13.8 percent, to $1.65. Chrysler isn't publicly traded.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 2.87 percent from 2.89 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.20 percent from 0.18 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude for April delivery rose $1.55 to $47.07 a barrel on the New York Mercantile Exchange.
Overseas markets were mixed after the World Bank forecast that the global economy will shrink this year for the first time since World War II. Japan's Nikkei stock average fell 1.21 percent, while Hong Kong's Hang Seng index dropped 4.84 percent. Britain's FTSE 100 rose 0.3 percent, Germany's DAX index rose 0.7 percent, and France's CAC-40 fell 0.0 percent.