Stocks slipped again Monday as a bleak corporate earnings season kicked off and as investors opted to sell amid worries stock prices have gotten too high in recent months.

The blue-chip Dow Jones Industrial average slid 96.11 points, or 0.96 percent, to 9,891.42, and the tech-laden Nasdaq Composite fell 31.72 points, or 1.57 percent, to 1,990.74, closing below the psychologically key 2,000 mark for the first time since Jan. 2. The broad Standard & Poor's 500 declined 7.19 points, or 0.63 percent, to 1,138.41.

Nasdaq's decline was led by firms such as Web gear giant Cisco Systems Inc., down 58 cents at $19.63, and network computing company Sun Microsystems, off 26 cents at $13.06.

"Whereas investors a few weeks ago were willing to not only anticipate but forgive poor earnings reports, there is greater concern now that perhaps they went too far ahead," said Rick Meckler, president of investment firm LibertyView, which oversees about $1 billion.

This week marks one of the busiest stretches of the earnings period, with results expected from tech giants like International Business Machines Corp. and Microsoft.

Reflecting investors' fears, Merrill Lynch, the nation's biggest brokerage house, advised clients to cut back on stocks and buy bonds, saying the recent rally resembles a bubble. Wireless telecommunications stocks were among the most badly beaten after Lehman Brothers downgraded the sector, battering shares of companies like Nextel Communications.

Shares of Kmart Corp. fell nearly 14 percent as concern about the fate of the discount chain mounted. Its shares slid 46 cents to $2.84, its lowest close in more than 30 years. Kmart's debt ratings were cut by Standard & Poor's, the retailer's third downgrade in a week.

Dow Chemical Co. shares continued last week's free-fall on asbestos liabilities concerns, falling more than 10 percent, or $3.20, to $27.05.

Merrill's chief U.S. strategist, Richard Bernstein, Monday said he was raising exposure to bonds and cutting stocks in the company's recommended asset allocation. The new recommendation is for a portfolio with 50 percent in stocks -- down from 60 percent in equities -- plus 30 percent in bonds -- up from 20 percent in bonds -- and 20 percent in cash, unchanged.

The market added to Friday's decline, when downbeat comments by Federal Reserve Chairman Alan Greenspan helped push the Dow below the key 10,000 level. The Fed chief said the recession-wracked economy shows signs of stabilizing, but still faces "significant" risks. A slew of dismal corporate news reports also dimmed investors' hopes for a quick economic turnaround.

"The stock market has just gone pretty far, pretty quickly and you're going to see a little profit-taking," said Matt Holscher, head of Nasdaq trading at WR Hambrecht. "People are a little worried about upcoming earnings so they take a little bit off the table. It may also be a little hangover from Alan Greenspan's comments on Friday."

Wall Street's recent rally, which drove stocks up from 3-year lows hit 10 days after the Sept. 11 attacks on the United States, has carried the Nasdaq up nearly 45 percent. The Dow and the S&P 500 gained more than 22 percent and 19 percent, respectively.

The latest hint that Corporate America may not be able to live up to investors' heightened expectations when it comes to profits came after a Lehman Brothers analyst cut his recommendation on the sector and lowered his expectation for industry-wide subscriber growth and cash-flow margin.

Wireless firm Nextel was among those hit by Lehman's downgrade. It fell $1.64 to $8.36 after Lehman cut it to "sell from "market perform." Others that got hurt were AT&T Wireless , down 30 cents at $11.46, and Sprint PCS Group , down 22 cents at $19.27.

Oil stocks also fell, in line with a drop in crude oil prices. The Philadelphia oil services index lost 2.9 percent, reflecting losses in companies such as Schlumberger Ltd. . NYMEX crude for February delivery fell 79 cents to end at $18.89 a barrel, as weak demand and low refining margins drove prices down on momentum from Friday's decline.

Computing titan IBM, a Dow stock, lost $2.26 to $118.05. IBM announced the completion of its $129 million acquisition of CrossWorlds Software Inc. 10 weeks after reaching a definitive agreement to purchase the California-based company.

After the market's regular session ended Friday, conglomerate Tyco International Ltd. denied rumors it was interested in buying diversified manufacturer and defense contractor Honeywell International Inc. Honeywell fell $1.55 to $31.70, while Tyco rose $2.15 to $52.40.

Tyco, which is scheduled to give its quarterly results on Tuesday, is expected to meet consensus expectations and to give a positive outlook for the rest of the year on strength in its security and health-care operations.

A profit warning came from Anadarko Petroleum Corp. , the top independent U.S. oil and gas producer, which said it sees earnings missing the Street consensus estimate due to a downturn in the industry. It reversed an early loss and rose 10 cents to $49.06.

Heading Nasdaq percentage losers, Miravant Medical Technologies plunged 75 percent, or $7.31 to $2.44. The firm reported disappointing results of Phase III clinical trials of a drug to treat a vision-threatening disease.

Declining issues outnumbered advancers 3 to 2 on the New York Stock Exchange where volume was moderate. 

The Russell 2000 index, which tracks the performance of smaller company stocks, fell 6.93, or 1.4 percent, to 483.01. 

Stocks were lower overseas on Monday when France's CAC-40 fell 2.2 percent, Britain's FT-SE declined 1.8 percent, and Germany's DAX index stumbled 2.8 percent. 

Japanese financial markets were closed Monday for a national holiday, and will reopen Tuesday.

Reuters and the Associated Press contributed to this report.