Higher oil prices and news of slowing growth in the service sector pulled stocks lower Monday despite some optimism over a $25 billion bid for Guidant Corp (GDT).

Inflation worries again plagued Wall Street as crude futures pierced $60 per barrel, reinforcing concerns that the Federal Reserve might continue lifting interest rates to stem inflation from increased energy costs.

The Dow Jones industrial average lost 42.50, or 0.39 percent, to 10,835.01. Broader stock indicators were also lower. The Standard & Poor's 500 index fell 2.99, or 0.24 percent, to 1,262.09, and the Nasdaq composite index dropped 15.73, or 0.69 percent, to 2,257.64.

Last week, the market broke a five-week rally after a string of government reports painted a rosier picture of the economy than many had been predicting. That economic strength could justify more interest rate hikes and halt Wall Street's year-end advance, said Bill Groenveld, header trader at vFinance Investments.

"Whether the market flattens out for the next couple of weeks, there's always going to be uncertainty about the future," Groenveld said. "It's going to be a real news-sensitive market over the next quarter."

Stocks retreated after the Institute for Supply Management reported a slowdown in the service sector despite rebounds in new orders and employment. Investors, however, shrugged off a drop in the prices paid index, which bodes well for inflation.

Bond prices extended last week's selloff, with the yield on the 10-year Treasury note rising to 4.57 percent from 4.52 percent late Friday. The dollar declined against other major currencies, while gold prices continued climbing above $500 per ounce.

Forecasts for the Northeast's first big snowstorm triggered a runup in energy prices. A barrel of light crude added 59 cents to settle at $59.91 on the New York Mercantile Exchange; natural gas, a common heating fuel, tumbled 27.1 cents to $13.66 per 1,000 cubic feet after surging more than 50 cents during in the session.

With little economic data expected this week, Wall Street will likely face several days of profit-taking following a monthlong rally that boosted the Dow about 7 percent from its October lows, said Michael Sheldon, chief market strategist at Spencer Clarke LLC.

Sheldon said the market's advance could be derailed entirely by escalating oil prices, higher yields on long-term bonds and indications that corporate earnings will fall short of expectations. "But until we see several days of significant selling and increased volume, we have to give the benefit of the doubt to the bulls," Sheldon said.

The ISM said Monday that its non-manufacturing index pulled back to 58.5 in November from an October reading of 60. Economists thought service sector activity would slide to 59, but any level above 50 still implies growth.

Acquisitions led the day's headlines. Boston Scientific Corp. (BSX) launched a competing bid for rival Guidant of $25 billion, about $3.5 billion more than a recently reworked deal with Johnson & Johnson. The combined firm would be the world's biggest maker of implantable heart devices. Guidant climbed $6.16 to $67.98, while Johnson & Johnson (JNJ) lost 16 cents to $61.05 and Boston Scientific fell 98 cents to $26.35.

Verizon Communications Inc. (VZ) said late Sunday it may sell or spin off its domestic phone and Internet directories business to focus on broadband and wireless operations. Verizon Information Services is reportedly valued at about $17 billion. Verizon dropped 16 cents to $31.71.

Department store operator Sears Holdings Corp. (SHLD) has offered $718.5 million to buy up the remaining 46 percent of Sears Canada Inc. it doesn't already own. The cash-for-stock deal is an 8.7 percent premium and would give Sears control of about 435 Canadian facilities. Sears was down $2.79 to $116.71.

Liberty Media Corp. (L) has agreed to acquire Provide Commerce Inc., an online retailer of food and flowers, for $477 million, or $33.75 per share. Provide gained $3.53 to $33.76, and Liberty fell 3 cents to $7.77.

Intel Corp. (INTC) sank 53 cents to $26.90 after revealing plans to spend more than $1 billion over the next five years to expand operations in India and invest in local technology companies.

Declining issues outpaced advancers by about 5 to 3 on the New York Stock Exchange, where volume of 1.69 billion shares topped the 1.53 billion shares changing hands at the same point Friday.

The Russell 2000 index of smaller companies fell 4.00, or 0.58 percent, to finish at 686.57.

Overseas, Japan's Nikkei stock average gained 0.84 percent. Britain's FTSE 100 lost 0.32 percent, Germany's DAX index fell 0.77 percent, and France's CAC-40 was lower by 0.26 percent.