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The U.S. stocks closed mixed after volatile trading on Monday following record runs in the previous week, with the Nasdaq Composite Index eking out small gains, as the U.S. non-manufacturing activity index for July came in positive.
The Dow Jones Industrial Average dropped 46.23 points, or 0.30 percent, to 15,612.13. The S&P 500 lost 2.53 points, or 0.15 percent, to 1,707.14. The Nasdaq Composite Index edged up 3.36 points, or 0.09 percent, to 3,692.95.
The stocks opened mildly lower to start a week with a light economic calendar and posted a choppy session as investors tended to take a breather after major stock indices logged fresh highs last week.
In the previous week, the broader S&P 500 settled above the important psychological level of 1,700 points for the first time in history, boosted by better-than-expected economic data and the U.S. Federal Reserve's reassurance to keep its monetary stimulus in place.
However, the market was dampened by renewed worries about the central bank's exit from its quantitative easing.
Dallas Fed President Richard Fisher said on Monday that with the unemployment rate having come down to 7.4 percent, he believes the Fed is now closer to "execution mode" of cutting asset purchases and is pondering the right time to begin reducing its purchases. He added that he wants the cuts to begin this fall.
The U.S. unemployment rate in July fell to 7.4 percent from 7.6 percent in June despite a slower growth of non-farm payroll, the Labor Department reported last week.
Fed Chairman Ben Bernanke said in June that the Fed would probably make cuts to the program later this year, with an eye to ending it by mid-2014, when unemployment will likely be around 7 percent.
On the economic front, data released Monday showed the U.S. service sector expanded at a faster pace in July, but failed to help the market shrug off negative sentiment.
The non-manufacturing index jumped to 56.0 from June's 52.2, according to the Institute for Supply Management (ISM). Analysts polled by Bloomberg had expected the index to rise to 53.0 in July.
"Widespread growth in orders and production lifted the non-manufacturing ISM (index) in July, just as it lifted the manufacturing index. Respondents are optimistic and starting projects with an eye toward increased activity at the end of the year," FTN Financial Chief Economist Christopher Low commented in a note on Monday.
On the corporate front, Disney, Time Warner and Tesla Motors are set to report their earnings this week. The second-quarter earnings season is drawing closely to an end with nearly 80 percent of the S&P 500 companies having reported second-quarter earnings, according to Thomson Reuters data.
On other markets, oil prices dropped Monday as upbeat U.S. service sector data offset supply recovery in Lybia.
Libyan Oil Minister Abdulbari Al-Arusi said Monday at a press conference in Tripoli, that the country should pump 800,000 barrels a day next month from a current 700,000.
Light, sweet crude for September delivery lost 38 cents to settle at 106.56 dollars a barrel on the New York Mercantile Exchange. Brent for September delivery went down 25 cents to close at 108.7 dollars a barrel.
The U.S. dollar dipped against most major currencies on Monday, continuously pressured by disappointing U.S. non-farm payroll report for July and the Fed's policy meeting announcement last week to keep its current monetary stimulus in place to bolster the economy.
In late New York trading, the euro fell to 1.3259 dollars from 1.3285 dollars of the previous session. The dollar bought 98.3 Japanese yen, lower than 98.90 yen of the previous session.
Gold futures extended losses on Monday, extending last week's 0.9-percent decline. The most active gold contract for December delivery dropped 8.1 dollars, or 0.6 percent, to settle at 1,302.4 dollars per ounce.
