NEW YORK — The stock market Monday retreated for the first time in five days as investors worried about balance sheets at banks and the quarterly results that businesses will start releasing this week.
Investors were also disappointed that talks had stalled regarding a possible $7-billion acquisition of Sun Microsystems by IBM, signaling that the market was still not ready to support big mergers.
Financial shares sold off after a prominent analyst predicted more losses at banks and said the government's efforts to prop up the ailing industry might not be as effective as hoped.
Michael Mayo issued "sell" ratings on several banks and said in his report that loan losses could exceed levels seen in the Great Depression.
The market was already on edge about the coming parade of first-quarter results, which kicks off today with a report due from aluminum producer Alcoa. Worse-than-expected reports could easily eat further into the market's recent advance, which brought the Dow Jones industrials and the Standard & Poor's 500 index up more than 20% from early March, when they hit their lowest levels in 12 years.
The Dow fell 41.74 points, or 0.5%, to 7,975.85 after being down as much as 155 points.
The Standard & Poor's 500 index fell 7.02 points, or 0.8%, to 835.48, while the Nasdaq composite index fell 15.16 points, or 0.9%, to 1,606.71.
The Russell 2,000 index of smaller companies fell 1.9%.
Technology stocks were lower after the IBM-Sun news. Discussions between the technology giants had been in their final stages, but IBM was said to have taken its offer off the table Sunday after Sun terminated IBM's status as its exclusive negotiating partner.
It was unclear whether talks were continuing or whether Sun was trying to find an alternative suitor. Sun's shares sank 23%, while IBM's slipped 0.6%.
A jump in stocks of military contractors helped the market pull off its lows. Defense Secretary Robert M. Gates recommended halting production of the F-22 fighter jet as he outlined deep cuts to many of the military's biggest weapons programs but pointed to spending increasing in other areas. Lockheed Martin surged 8.9%. Northrop Grumman rose 9%.
Ford Motor jumped 52 cents, or 16%, to $3.77 after the company said it retired 38% of its debt, saving millions of dollars in interest costs.
Among the biggest decliners in the financial industry were Wells Fargo, which dropped 6.7%, and PNC Financial Services Group, which fell 5.6%. Regional bank stocks also posted sharp declines.
The drop in bank stocks came on the heels of Treasury Secretary Timothy F. Geithner's warning Sunday that the government could force out bank chief executives after having moved a week ago to oust Rick Wagoner as CEO of General Motors.
Like banks, GM is also a major recipient of government rescue funds, and Wagoner's dismissal raised widespread speculation that leadership at banks being helped by the government could also be in for changes.
Oil futures fell $1.46 to settle at $51.05 a barrel on the New York Mercantile Exchange.