Stocks fell in choppy trade on Monday as gains in the energy and banking sectors were more than offset by a drop in pharmaceuticals after Merck's proposed $41 billion takeover of Schering-Plough .

Even though news of the acquisition sparked optimism about deal activity, investors worried that it highlighted the broad reach of the recession, weakening even defensive sectors such as pharmaceuticals.

Any kind of merger or anything like that would be good, said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas. But we're just so weak, the internals, everything is just so weak.

Everybody's mind-set is 'who's to say (the market) is going to come back or when it's going to come back'.

Pharmaceuticals were among the top drags on the Dow industrials, with Merck down 8.2 percent at $20.87, Johnson & Johnson shed 2.8 percent at $46.62 and Pfizer
dipped 0.6 percent at $12.65. But Schering-Plough shares jumped more than 15 percent to $20.30 on the deal.

The Amex Biotechnology index <.BTK> fell 3 percent.

The Dow Jones industrial average <.DJI> dropped 48.99 points, or 0.74 percent, to 6,577.95. The Standard & Poor's 500 Index <.SPX> fell 3.51 points, or 0.51 percent, to 679.87. The Nasdaq Composite Index <.IXIC> declined 17.92 points, or 1.39 percent, to 1,275.93.

However, a jump of 3.4 percent, or $1.54, in U.S. oil futures to $47.06 a barrel lifted shares of energy companies. Exxon Mobil gained 0.9 percent to $64.61, making it the Dow's top advancer.

An S&P index of energy stocks <.GSPE> gained 0.8 percent.

Google's stock fell 4.6 percent to $294.32, which at its current pace will be its 5th straight weekly slide and mark its longest losing streak in more than a year.

Financial stocks were a bright spot, rising as investors bet on the potential for more clarity from Washington on plans to shore up the banking system. U.S. Federal Reserve Chairman Ben Bernanke attended a meeting on the economy with U.S. President Barack Obama, the White House said.

Shares of Bank of America surged more than 16 percent to $3.65 and Wells Fargo & Co jumped nearly 17 percent to $10.05. An S&P financial index <.GSPF> was up 2.4 percent.

(Editing by James Dalgleish)