NEW YORK Wall Street pulled back Monday as investors took profits following a four-week rally, fearful of poor earnings reports starting this week and more trouble for banks.
Investors were also disappointed that talks for IBM Corp.'s $7 billion deal to buy Sun Microsystems Inc. have stalled a sign that the market is 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 of the 1930s.
The market was already on edge about the coming parade of first-quarter results, which kicks off Tuesday with aluminum producer and Dow component Alcoa Inc. Worse-than-expected reports could easily upset the market's recent advance, which brought stocks up more than 20 percent from early March, when stocks hit their lowest levels in 12 years.
"You have some skittishness in the market," said Len Blum, managing director at Westwood Capital LLC. "We have earnings season up ahead and it's very difficult to predict what that is going to do."
The Dow Jones industrials fell 41.74, or 0.5 percent, to 7,975.85 after being down as much as 155 points.
The Standard & Poor's 500 index fell 7.02, or 0.8 percent, to 835.48, while the Nasdaq composite index fell 15.16, or 0.9 percent, to 1,606.71.
Technology stocks were lower following the IBM-Sun news. Discussions between the technology giants had been in their final stages, but The Associated Press learned that IBM took 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 if Sun was trying to find an alternative suitor. Sun shares plunged more than 22 percent, falling $1.93 to $6.56. IBM fell 66 cents, or less than 1 percent, to $101.65.
Also weighing on the technology sector was a downgrade of Cisco Systems Inc. A Goldman Sachs analyst cut the rating on the stock to "Neutral" from "Buy," saying it had reached her $18 price target. Shares dropped 63 cents, or 3.5 percent, to $17.53.
Among the biggest decliners in the financial industry were Wells Fargo & Co., which dropped $1.09, or 6.7 percent, to $15.25, and PNC Financial Services Group Inc., which fell $1.99, or 5.6 percent, to $33.81. Regional bank stocks also posted big losses.
Some traders were also unnerved by a two-week delay in a government program to help banks unload troubled loans from their books, which relies on hedge funds and other private investors buying loans and other assets from banks.
On Monday the Treasury Department extended the application deadline for the program to April 24 and relaxed some of the participation criteria to attract a wider pool of investors. The delay was a worrisome signal that the program could be running into problems.
The announcement came on the heels of Treasury Secretary Timothy Geithner's warning Sunday that the government could force out bank CEOs following its move a week ago to oust Rick Wagoner as CEO of General Motors Corp.
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.
Financial stocks largely carried the market's recent rally, as unprecedented government intervention and reassurances from bank CEOs that business is better than expected fed optimism that the economy could be turning around.
Investors are also awaiting results later this month of the government's "stress tests" of the nation's biggest banks. The tests, which aim to determine which banks might be in need of more capital if economic conditions worsen, are expected to be complete by the end of this month.
On Friday, the Dow rose 39 points to close above the 8,000 mark for the first time in nearly two months, logging a fourth straight week of gains and its best four-week performance since 1933.
Analysts are warning that companies' first-quarter reports, and their even more important forecasts for the remainder of the year, could derail the market's advance. Banking, retail, technology and industrials companies will be in particular focus.
"Companies have to come across with commentary that the worst is passed," said Nicholas Colas, chief market strategist at BNY ConvergEx. "That is the most critical thing and you have to hear it from a broad range of companies in a wide variety of industries."
The Russell 2000 index of smaller companies fell 8.57, or 1.9 percent, to 447.56.
More than two stocks fell for every one that rose on the New York Stock Exchange, where volume came to a light 1.3 billion shares.
Treasurys fell, pushing the yield on the 10-year note up to 2.94 percent from 2.90 percent late Friday. The dollar was mixed against other major currencies, and gold prices fell to their lowest close in more than two months as demand has waned for safe-haven assets.