Stocks turned negative after a strong opening on Monday as relief over a last-ditch debt deal in Washington faded after a weak reading on the manufacturing sector.

The Institute for Supply Management (ISM) reported the pace of growth in the U.S. manufacturing sector slowed more than expected in July while new orders hit their lowest level since June 2009.

A deal to raise the debt limit offered early relief to markets, worried about a default by the U.S. government. Lawmakers were due to vote later Monday on the White House-backed agreement, which includes spending cuts of $2.4 trillion over 10 years.

Even though a default was considered unlikely by many investors, the threat of a credit rating downgrade continued to weigh on sentiment after Wall Street's worst week in a year last week.

"We avoided the possibility of a default, but now concerns are turning to a possible downgrade," said Phil Streible, senior market strategist with futures broker Lind-Waldock in Chicago. "The ISM number is putting more pressure on equities at a time when fundamentals aren't that strong."

The Dow Jones industrial average dropped 46.62 points, or 0.38 percent, to 12,096.62. The Standard & Poor's 500 Index lost 6.48 points, or 0.50 percent, to 1,285.80. The Nasdaq Composite Index fell 10.99 points, or 0.40 percent, to 2,745.39.

In earnings news, home and auto insurer Allstate Corp recorded a quarterly loss but the results were better than expected, while health insurer Humana Inc. raised its profit view.

Allstate gained 1.4 percent to $28.13, while Humana slid 1.7 percent to $73.35.

HSBC Holding Plc. reported a surprise first-half profit and said it would cut 30,000 jobs. U.S.-listed shares of the banking group rose 1.4 percent to $49.60.

(Editing by Jeffrey Benkoe)