Wall Street pulled back Monday, losing momentum from last week's gains after news that sales of existing homes slipped in July for a fifth straight month stirred concerns about the strength of the economy.
The Dow fell 56.74, or 0.42 percent, to 13,322.13.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 12.58, or 0.85 percent, to 1,466.79, and the Nasdaq composite index fell 15.44, or 0.60 percent, to 2,561.25.
A fresh round of buyout news might have acted to limit the stock market's losses Monday, which were small compared to the triple-digit plunges the Dow Jones industrials suffered in early August. Stocks also pared their declines after the Chicago Federal Reserve reported that manufacturing activity in the Midwest ticked up 0.6 percent in July from June.
"I think there is still a little bit of nervousness about the credit market but that seems to be abating slowly," said Brian Gendreau, an investment strategist for ING Investment Management. "We had a very strong week last week and I wouldn't attribute this downmarket to any return to panic," he said, referring to concerns about bad loans and a drying up of liquidity that upset markets in recent weeks. "I think it's just a normal down day."
Bonds rose sharply, with the yield on the benchmark 10-year Treasury note falling to 4.57 percent from 4.62 percent late Friday. Bond prices move opposite their yields.
Last week was a strong one for the markets following weeks of volatility owing to worries that credit is shrinking to the point where it pinches economic and corporate growth. The Dow finished up 2.29 percent for the week, the S&P 500 advanced 2.31 percent, and the Nasdaq jumped 2.86 percent.
Gendreau contends investors last week gained a sense that the subprime and credit market problems weren't necessarily going to sink the economy although bad news on that front could still deal investors a setback. Unease has resurfaced in recent weeks that subprime mortgages -- those given to borrowers with weak credit -- will continue to falter as housing markets cool and as payments on adjustable-rate mortgages balloon.
"People realized, however severe the problems seemed to be in the credit area, that unless there's some big macro impact from this, large multinationals with strong overseas revenue should be able to whether these conditions fairly well," Gendreau said.
That realization, however, makes the likelihood of an interest rate cut at the Federal Reserve's next meeting less certain than it might have appeared two weeks ago, he said. Gendreau noted the Fed has "gone out of its way" to add liquidity, doing so again Monday with a $9.5 billion short-term injection into the banking system.
"The big question is whether the market will accept that as an adequate Fed response. What if the market doesn't get a rate cut? I think that won't be the end of the world."
Investors faced such questions Monday amid fresh signals that there still seems to be an appetite for corporate dealmaking. On Monday, U.S. Steel Corp. (X) said it will buy Canada's Stelco Inc. for about $1.1 billion; Swiss electrical engineer ABB Ltd. said it will sell its oil and gas production plant to Chicago Bridge & Iron NV for $950 million; and Taiwanese computer vendor Acer Inc. said it will acquire U.S. computer maker Gateway Inc. (GTW) for $710 million.
But it's possible the huge buyout sums seen earlier in the year, which drove the Dow to record highs last month, might slip as debt becomes more difficult to take on. The Home Depot Inc. (HD) has tentatively agreed to sell its wholesale distribution business to private equity firms for $8.5 billion, a person with direct knowledge of the situation said Sunday, which is $1.8 billion less than originally planned. The deal includes Home Depot guaranteeing $1 billion of the debt the buyers will take on to complete the transaction.
Home Depot shares rose 57 cents to $34.25 on the tentative deal.
Gateway surged 61 cents, or 50 percent, to $1.82 after news it was being acquired by Acer.
News of tie-ups among big companies seemed to offer little help to smaller stocks Monday; the Russell 2000 index of smaller companies fell 9.48, or 1.19 percent, to 789.45.
Wall Street often regards bigger companies as better able to withstand economic slowdowns, given that they can generally operate on slimmer profit margins. Gendreau noted that about half the revenue of the 30 companies that make up the Dow industrials is drawn from overseas, where economic growth is generally stronger.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to a light 1.1 billion shares compared with 1.18 billion shares traded Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose 97 cents to $72.06 per barrel on the New York Mercantile Exchange.
In Asian trading, Japan's Nikkei stock average rose 0.32 percent, while China's Shanghai Composite Index, which hit record closes every day last week, gained 0.8 percent to another all-time high.
In Europe, Germany's DAX index fell 0.28 percent and France's CAC-40 rose 0.38 percent. Markets in Britain were closed for a bank holiday.