The Dow and S&P 500 fell on Monday as a stronger U.S. dollar hurt energy and materials stocks, but the Nasdaq gained on strength in biotech share.

The dollar, which has been weak of late, rebounded Monday, with the U.S. Dollar index <.DXY> up 0.4 percent, putting pressure on crude oil and other commodities prices. .

The top drag on the Dow was Exxon Mobil , which fell 1.4 percent to $69.01 as the dollar pushed October crude futures down 3.9 percent to $69.24 per barrel.

The S&P Materials <.GSPM> sector was the biggest drag, down 1.7 percent, while the Energy index <.GSPE> fell 1.6 percent.

The focus for traders has been on the dollar, said Rick Meckler, the president of LibertyView Capital Management in New York. To the extent it rallies, they're using it as a reason to take profits.

The Dow Jones industrial average <.DJI> shed 26.53 points, or 0.27 percent, to 9,793.97. The Standard & Poor's 500 Index <.SPX> lost 3.08 points, or 0.28 percent, to 1,065.30. The Nasdaq Composite Index <.IXIC> rose 6.30 points, or 0.3 percent, to 2,139.24.

Through Friday, the benchmark S&P 500 had risen 58 percent off a 12-year closing low in early March, partly because of strong earnings and optimism that an economic recovery is gaining strength. Investors' appetite for riskier assets had reduced the safe-haven appeal of the dollar.

But that optimism is beginning to come under strain as investors seek more clarity about the 2010 profit outlook and await hints of how results will be for the rest of the year.

It's been hard to explain the recent strength of the markets, Meckler said. One explanation has been the weak dollar. When that turns, it takes away some technical support.

Adding to the negative tone, the Conference Board's index of leading indicators posted a weaker-than-expected gain in August.

Caterpillar Inc sank 1.7 percent to $52.49 after it said worldwide sales of machinery to dealerships fell in August.

The Nasdaq gained after Robert W. Baird upgraded Celgene Corp , lifting the stock 5 percent at $55.20. The AMEX Biotech index <.BTK> gained 0.8 percent.

Computer maker Dell Inc announced a $3.9 billion proposed takeover of Perot Systems Corp
. Perot soared 65 percent to $29.62, while Dell shares dipped 4.1 percent to $16.

(Editing by Kenneth Barry)