The blue-chip Dow Jones industrial average, which jumped 166.14 points Friday, fell 11.49 points, or 0.13 percent, to 8,836.07. The tech-heavy Nasdaq composite index, which gained 38.09 points in the previous session, lost 20.88 points to 1,477.92.
The broader New York Stock Exchange composite index fell 1.81 to 542.03 while the Standard & Poor's 500 index declined 2.80 to 1,038.14.
The American Stock Exchange composite index, however, nudged up 0.63 to 809.40 while the Wilshire Smallcap Index fell 11.57 to 601.49. The Wilshire 5000 index fell 47.58 to 9,515.37.
Big Board volume declined to an estimated 1.17 billion shares from 1.62 billion shares changing hands Friday. Nasdaq volume also dropped to 1.47 billion from 2.11 billion shares.
Decliners beat advancers 1,857 to 1,296 on the New York Stock Exchange, while retreaters also outnumbered gainers on the Nasdaq by 2,296 to 1,345.
Analysts said stocks fell from the opening bell, pressured by weakness in the manufacturing sector following the latest monthly report from the National Association of Purchasing Management.
The group's index fell to 47 percent in September, a decrease of 0.9 of a percentage point from the 47.9 percent reported in August.
Economists had forecast the number weaken to 45 percent. Index readings above 50 indicate expansion of activity and prices in the non-manufacturing sector, while readings under 50 denote contraction.
"The overall picture is one of continued decline in manufacturing activity during the month of September," said Norbert Ore, who assembles the survey for the NAPM.
He added, however, that "a major sign of encouragement is that inventory liquidation appears to be slowing as both manufacturers and their customers are bringing inventory levels under control."
The latest number comes a day before Federal Reserve policy makers meet. Most economists expect another cut in interest rates again, lowering the overnight federal funds target to 2.5 percent from 3 percent. The fed-funds rate began the year at 6.5 percent.
The September NAPM index corresponds with an annual growth rate of 1.6 percent, since at 47 percent it is above the 42.7 percent that is considered the threshold between overall economic expansion and contraction.
The report showed price pressures continued to remain weak in September at a reading of 36.3 percent compared with the August index of 33.9 percent. Manufacturing employment improved a bit but remained moribund at 41.2 percent, after posting a 40.8 percent reading the prior month.
Meanwhile, the Commerce Department said personal income rose $1.8 billion, or less than 0.1 percent in August. Economists expected an increase of 0.2 percent.
The figure reflected the weakened state of the nation's labor market, where unemployment shot up to 4.9 percent in August and payrolls fell. The flat reading marked the weakest showing in income growth since January 1994, when incomes dropped 3.9 percent.
The Commerce Department also reported consumer spending rose a modest 0.2 percent as tax-rebate checks put more money in shoppers' pockets during the month, but spending was slightly below expectations of a 0.3 percent increase.
Disposable incomes -- the amount of money left after taxes -- jumped for the second straight month, reflecting the impact of the tax-rebate checks and lower tax rates, both of which were generated by President Bush's $1.35 trillion, 10-year tax cut. Disposable incomes increased 1.9 percent in August, the biggest advance since December 1993.
The tax-rebate checks boosted total disposable income at an annualized rate by $81.4 billion in July and $209.4 billion in August, the government said.
Lower tax rates added another $13.7 billion, at an annual rate, in both July and August.
With disposable-income growth outpacing spending, the nation's personal savings rate -- savings as a percentage of after-tax income -- rose to 4.1 percent in August from 2.5 percent in July. It was the biggest increase the savings rate has seen since January 1999, when it also rose by 4.1 percent.
Economists have kept a close eye on consumers, whose spending accounts for two-thirds of the nation's economic activity, as shoppers have managed to keep the economy above water even as business spending has fallen sharply.
Since the terrorist attacks on Sept. 11, consumer confidence has fallen, layoffs have jumped and billions of dollars in business have been lost. Now, most economists fear consumer spending may not be able to keep the U.S. economy out of recession, and that the economy could begin to contract as the year draws to a close.
In an effort to stabilize the shaky economy, the Federal Reserve cut interest rates eight times this year, pushing borrowing costs down to a nine-year low. Many economists predict another cut when policy makers meet Tuesday.
The Commerce Department also said total construction spending fell 1.0 percent to a seasonally adjusted annual rate of $845.5 billion in August. Economists were expecting a 0.4 percent drop in construction spending.
August's decline in construction spending reflected an economy that was struggling to stay out of recession even before the shock of September's terrorist attacks, experts said.
Meanwhile, the New York Stock Exchange said it will implement new circuit breaker and trading collar trigger levels for the fourth quarter, effective Monday.
Circuit breaker points represent the thresholds at which trading is halted market-wide for single-day declines in the Dow Jones Industrial Average.
The exchange said a 900-point drop in the DJIA before 2 p.m. will halt trading for one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have no effect if at 2:30 p.m. or later.
A 1,800-point drop in the DJIA before 1 p.m. will halt trading for two hours; for one hour if between 1 p.m. and 2 p.m.; and for the remainder of the day if at 2 p.m. or later.
A 2,700-point drop will halt trading for the remainder of the day regardless of when the decline occurs.
And, the American Stock Exchange reopened its trading floor Monday morning as traders resumed buying and selling securities on the Amex's lower Manhattan building nearly three weeks after the terrorist attacks forced them to abandon the site.
The Amex was not able to reopen its floor in time for the Sept. 17 market wide resumption of trading after a four-day halt. Since then, the Amex has been trading its securities from the New York and Philadelphia stock exchanges.
But Amex traders were able to return to their floor on Trinity Place Monday, after Amex officials concluded days of repair work to the Amex's infrastructure.
U.S. Treasury prices were little changed Monday. The 30-year bond added 22/32 to 100 1/32. Its yield, which moves in the opposite direction of its price, fell to 5.37 percent from 5.42 percent.
In Europe, stock prices closed lower in London, Frankfurt and Paris in moderate trading, pressured by concerns over the global economy, the early weakness on Wall Street and weakness in tech and telecom stocks.
The London International Stock Exchange's blue-chip FTSE-100 index lost 117.80 points, or 2.40 percent, to 4,785.60. The German DAX index fell 68.18 points, or 1.58 percent, to 4,239.97 and the French CAC-40 index fell 74.45 points, or 1.83 percent, to 4,004.57.
Earlier in Asia, prices on the Tokyo Stock Exchange ended higher on hopes that domestic fund buying would re-emerge and after Japan's prime minister said the Resolution and Collection Corporation should buy the country's bad bank loans at market value.
Japan's blue-chip Nikkei Average of 225 selective issues, which rose 78.15 points Friday, gained another 197.60 points, or 2.02 percent, to its best level of the session of 9,972.28 and well below its worst level of 9,604.09.
Analysts said stocks came off their lows after Japan's Prime Minister Junichiro Koizumi told Parliament that the Resolution and Collection Corporation should buy the country's bad bank loans at market value.
Experts said Koizumi's comments eased speculation that the government would try to subsidize banks losses by buying them at book value.
Koizumi also said he plans to stick to his planned 30 trillion yen ($252 billion) cap on government bonds, quelling fears that the government might take on more debt.
Elsewhere, prices on the Australian Stock Exchange ended higher in moderate trading, lifted by strength in mining issues. The blue-chip All Ordinaries Index rose 46.80 points, or 1.57 percent, to 3,034.80.
Meanwhile, markets in Hong Kong, South Korea and Taiwan were closed Monday for national holidays. Trading will resume on Tuesday in Taiwan and Wednesday in Hong Kong and South Korea.