Stocks slumped to a weak finish Monday as lingering worries about the economy overcame optimism from a fresh round of corporate dealmaking.
Stocks had an early lift after Hewlett-Packard Co. bid 33 percent more than rival Dell Inc. for a data storage provider, but the gains faded quickly.
The Dow Jones industrial average was up as much as 91 points in early trading but turned mixed for much of the day. A slump in the final half-hour of trading left the Dow with a loss of 39 points.
Despite the positive deal news, a number of worries about the economy are keeping a lid on the market, especially a reluctance among companies to create jobs. Stocks had a two-day selloff late last week after first-time claims for unemployment benefits jumped to their highest level since November.
"Companies are not hiring because they don't know the rules of the game," said. Frank Ingarra, co-portfolio manager of Hennessy Funds. "When you don't know the rules, you pack up and go home."
Ingarra said companies are hesitant to hire because of uncertainty surrounding costs tied to recently passed financial regulation and health care reform. The possibility of rising taxes also has companies worried about consumption, he said.
In other deal news, Potash Corp. of Saskatchewan Inc. rejected BHP Billiton's $38.5 billion offer to acquire the fertilizer company, and HSBC Holdings said it was in talks to buy a controlling stake in Nedbank Group Ltd. of South Africa from Old Mutual for as much as $6.8 billion.
The Dow Jones industrial average lost 39.21 or 0.4 percent, to close at 10,174.41. Other major stock indexes also ended lower.
The Standard & Poor's 500 index fell 4.33, or 0.4 percent, to 1,067.36, while the Nasdaq composite index lost 20.13, or 0.9 percent, to 2,159.63.
Falling stocks outpaced gaining ones three to two on the New York Stock Exchange. Consolidated trading volume was very light at 3.3 billion, versus 3.8 billion on Friday.
Bond prices fell. The yield on the 10-year Treasury note, which moves opposite to its price, fell to 2.60 percent from 2.62 percent late Friday. That yield helps set interest rates on mortgages and consumer loans.
"People are focused on the head winds more than the tail winds," said Walter Gerasimowicz, chief investment officer at Meditron Asset Management. He said investors are overlooking historically low interest rates and signs of corporate strength, choosing instead to focus on disappointing economic data.
Reports are due this week on the housing market, durable goods orders, consumer sentiment and a revision to second-quarter gross domestic product.
Housing remains especially weak following the expiration of the government's tax credit earlier this year. Reports on existing and new home sales are due out Tuesday and Wednesday.
Traders will be looking at Wednesday's report on durable goods orders to see if a slowdown in manufacturing was only temporary. Manufacturing has been one of the few bright spots in the broader economy this year.
Hewlett-Packard shares fell 81 cents to $39.04, while 3Par jumped $8.05, or 44.6 percent, to $26.09. Dell fell 13 cents to $11.94.