Until the final hour of trading, the markets saw low volatility, light volume and very little conviction ahead of next week's Federal Reserve meeting, during which it is expected to decide on an interest rate hike.

Investors are also looking to the June 30 handover of power in Iraq, hoping tensions there will start to ease. Many also await second-quarter earnings, expected next month.

"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."

According to preliminary calculations, the Dow Jones industrial average fell 44.94, or 0.4 percent, to 10,371.47. The Dow traded in a narrow range off Friday's close for most of the day until investor pessimism sent stocks lower at the end of the day.

Broader stock indicators were moderately lower. The Standard & Poor's 500 index was down 4.70, or 0.4 percent, at 1,130.32, and the Nasdaq composite index lost 12.35, or 0.6 percent, to 1,974.38.

Most investors expect the Fed to make a quarter-percentage-point hike in the benchmark rate, currently at a 43-year low of 1 percent, which some analysts think could prompt a rally through the summer months. The possibility of a half-point raise — or, more unlikely, no hike at all — would likely roil the markets instead of providing a boost to stock prices.

The financial sector continued to see a great deal of merger activity. This time, Wachovia Corp. announced it will purchase rival bank SouthTrust Corp. in a deal valued at $14.3 billion. The deal would give Wachovia a strong footing in the South. Wachovia dropped $1.98 to $45.02, while SouthTrust jumped $4.57, or 13 percent, to $39.37.

"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."

Simon Property Group Inc., North America's largest mall owner, fell 32 cents to $51.98 after it said it will buy Chelsea Property Group, which operates 60 outlet centers and shopping malls, for about $3.5 billion. Chelsea surged $7.01 to $65.25.

Monsanto Co. 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. rose 87 cents to $35.77 after beating Wall Street estimates by a penny on its latest quarterly earnings report.

Goodyear Tire & Rubber Co. 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.

Declining issues barely outnumbered advancers on the New York Stock Exchange, where volume was very light.

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