Socks cut losses on Monday as the euro gained ground against the U.S. dollar, reflecting reduced worries after calls for Portugal to seek a rescue from its debt crisis.

Sentiment was dampened as pressure mounted for Lisbon to seek an international bailout soon, but losses were capped as investors focused on merger activity in the United States and financial results for the fourth quarter.

Stocks have been helped by some strong economic data heading into the earnings season, leading to six straight week of gains by the Dow and the S&P.

At least today, the strength in the market has allowed investors to shrug off concerns about European debt, said Michael James, senior trader at Wedbush Morgan in Los Angeles. The (equities) market remains in a pretty solid uptrend.

Aluminum company Alcoa Inc is scheduled to be the first Dow component to report results after the market's close. The stock edged up 0.5 percent to $16.50.

The euro, seen as a proxy for investors' risk appetite, gained 0.6 percent against the U.S. dollar, recovering from a four-month low.

The Dow Jones industrial average <.DJI> dropped 39.02 points, or 0.33 percent, to 11,635.74. The Standard & Poor's 500 Index <.SPX> dipped 2.06 points, or 0.16 percent, to 1,269.44. The Nasdaq Composite Index <.IXIC> gained 2.25 points, or 0.08 percent, to 2,705.42.

Merger deals announced on Monday included Duke Energy Corp agreeing to buy Progress Energy Inc

for $13.7 billion in stock. DuPont

plans to buy Danisco , a Danish food ingredient firm, for $5.8 billion.

Shares of Progress slid 2.2 percent to $43.75, and Duke fell 1.6 percent to $17.50. DuPont, a Dow component, fell 1.9 percent to $48.81.

In company news, LDK Solar Co Ltd jumped 18.1 percent to $12.32 after the Chinese solar wafer maker forecast fourth quarter and 2011 revenue well above analysts estimates, signaling strong demand for solar products.

Shares of AT&T Inc fell 2 percent to $28.28 as investors bet sales of an Apple Inc iPhone at its bigger rival Verizon Wireless would take away customers from AT&T. Apple rose 1.6 percent to $341.45, buoying the Nasdaq.

Education stocks slipped after Strayer Education Inc said new enrollments at its university fell 20 percent in the winter term, signaling another tough quarter ahead from U.S. for-profit colleges.

Strayer shares plunged 22.8 percent to $118.35. Corinthian Colleges Inc tumbled 12.9 percent to $4.60, and Apollo Group Inc , which is set to post earnings after the close, lost 4.9 percent to $36.13.

The benchmark S&P 500 was on track for its first three-day string of losses since late November. Still, it found support near its 14-day moving average, now near 1,264.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)