Stocks fell in a late-day sell-off Monday as news of Wachovia Corp.'s (WB) $14 billion acquisition of SouthTrust Corp. was offset by investors' caution before next week's Federal Reserve meeting and the U.S. transfer of power in Iraq.

The Dow Jones industrial average (searchfell 44.94 points, or 0.43 percent, to 10,371.47. The Standard & Poor's 500 Index (searchlost 4.70 points, or 0.41 percent, to 1,130.32. The technology-laced Nasdaq Composite Index (searchslipped 12.35 points, or 0.62 percent, to 1,974.38.

Until the final hour of trading, the markets saw low volatility, light volume and very little conviction ahead of next week's Federal Reserve (search) meeting, during which the Fed's Open Market Committee was expected to decide on an interest rate hike.

"On the one hand we have some positive earnings to look forward to, but on the other, we have these interest rate questions and the geopolitical risks," said Keith Keenan, vice president of institutional trading at Wall Street Access. "But all that means this week is that we're in a holding pattern. There's just no motivation on the part of buyers or sellers."

Most investors are expected a quarter percentage point raise in the benchmark rate, currently at a 43-year low of 1 percent. A half-point hike — or, more unlikely, no hike at all — would likely roil the markets instead of providing a boost to stock prices.

June 30 also marks the handover of power in U.S.-occupied Iraq to an interim Iraqi gate that many investors fear could be marked by an escalation of violence.

"The market is focused on June 30th with the Fed and the Iraq handover, so there's not a real impetus for people to be overly aggressive, although I think it will be busier tomorrow and Wednesday than it is today," said Bob Harrington, managing director and head of cash trading at UBS Investment Bank.

On the New York Mercantile Exchange (search), crude oil for July delivery settled at $37.63 a barrel, down $1.12, after partial restoration of Iraq's sabotaged exports overshadowed Iran's seizure of three British vessels earlier.

The financial sector continued to see a great deal of merger activity. This time, Wachovia Corp. announced it would purchase rival bank SouthTrust Corp. in a deal valued at $14.3 billion. The deal would give Wachovia a strong footing in the South.

"This was widely rumored, so when Wachovia announced it, it wasn't a huge impact," said Brian Pears, head equity trader at Victory Capital Management. "There was a little spillover into smaller banks that could be takeover targets, but not a huge amount. I think that's an acknowledgment of how hard it is to extract value from these deals."

Wachovia shares fell $1.98, or 4.2 percent, to $45.02 on the NYSE, while those of SouthTrust shot up $4.57, or 13 percent, to $39.37 on Nasdaq.

Shares of Cisco Systems Inc. (CSCO) and Nortel Networks Corp. (NT) also rose, lifted by a report that the chief executives of both companies met in Toronto, a sign that talks of a partnership between them is getting serious.

Nortel shares rose 10 cents, or 2.3 percent, to $4.54 on the New York Stock Exchange, where they were the second-most active issue. Cisco shares shed 55 cents, or 2.4 percent, to $22.87 on the Nasdaq, where they were among the most-active issues.

Wal-Mart Stores Inc. (WMT) restrained the blue-chip Dow, after the discount retailer indicated that June sales at stores open at least a year could miss its expectations. Shares of Wal-Mart, the world's largest retailer, dropped 69 cents, or 1.2 percent, to $54.93.

Monsanto Co. (MON) boosted its quarterly and yearly earnings outlook, crediting tax cuts and a good growing season for its agricultural products. Monsanto was up 27 cents at $35.69.

Walgreen Co. (WAG) rose 87 cents to $35.77 after beating Wall Street estimates by a penny on its latest quarterly earnings report. The drugstore chain said cost cutting and a jump in prescription drug sales fueled its gains.

Goodyear Tire & Rubber Co. (GT) posted a narrower-than-expected loss thanks to a 21 percent increase in revenues from a year ago. The tire maker fell 15 cents to $9.74.

Trading was light, with 1.12 billion shares changing hands on the New York Stock Exchange, below the 1.4 billion daily average for last year. About 1.36 billion shares were traded on Nasdaq, below the 1.69 billion daily average last year.

Decliners outnumbered advancers on the NYSE by 17 to 16, and 17 to 14 on Nasdaq.

The Russell 2000 index of smaller companies was down 1.80, or 0.3 percent, at 568.74.

Overseas, Japan's Nikkei stock average gained 1.9 percent. In afternoon trading, Britain's FTSE 100 closed down 0.1 percent, France's CAC-40 was flat for the session and Germany's DAX index lost 0.3 percent.

Reuters and the Associated Press contributed to this report.