Stocks recovered most of their early losses in light volume and ended slightly lower on Monday as prospects for strong earnings helped counter fears Portugal would be forced into a bailout.
Investors say the market's upward trend remains intact, but the S&P's third straight session of declines suggests momentum has stalled.
Traders also cited the positive outlook for earnings as a catalyst for the rebound. Even though The S&P 500 edged down, the number of advancers outweighed decliners on both the New York Stock Exchange and the Nasdaq.
The S&P (earnings) have been positively surprising the market for the last six quarters and I expect that to continue, said Doug Cote, who helps manage about $50 billion as senior market strategist with ING Investment Management in New York.
Stocks initially fell on worries Lisbon would have to seek a bailout, but concerns faded on talk of support from the European Central Bank.
The euro, seen of late as a proxy for investors' risk appetite, gained 0.5 percent against the U.S. dollar, recovering from a four-month low.
We believe that it's prudent to monitor debt problems in Ireland, Spain and Portugal, but these situations are nowhere near crisis levels, and we believe they are largely overblown, Cote said, noting the rebound in the euro.
The Dow Jones industrial average <.DJI> fell 37.31 points, or 0.32 percent, to 11,637.45. The Standard & Poor's 500 Index <.SPX> dipped 1.75 points, or 0.14 percent, to 1,269.75. The Nasdaq Composite Index <.IXIC> gained 4.63 points, or 0.17 percent, to 2,707.80.
The benchmark S&P 500 found technical support near its 14-day moving average, now around 1,264.
Merger deals announced on Monday included Duke Energy Corp
Shares of Progress fell 1.6 percent to $43.99, and Duke fell 1.2 percent to $17.58. DuPont, a Dow component, fell 1.5 percent to $49.03 while Danisco rose 24 percent.
LDK Solar Co Ltd
Education stocks slid after Strayer Education Inc
Strayer shares plunged 22.6 percent to $118.60. Corinthian Colleges Inc
Apollo Group Inc
About 7.2 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 8.47 billion.
Advancing stocks outnumbered declining ones on the NYSE by 1,543 to 1,458, while on the Nasdaq, about five stocks rose for every four that fell.
(Reporting by Rodrigo Campos; Editing by Kenneth Barry)