The blue-chip Dow Jones industrial average, which rose 5.68 points Friday, ended 115.35 points lower, down 1.14 percent, to 10,021.64. The tech-heavy Nasdaq composite index, which gained 10.84 points in the previous session, shed 36.19 points, or 1.82 percent, to 1,951.07.

The broader New York Stock Exchange composite index fell 4.60 to 589.78 while the Standard & Poor's 500 index dropped 12.82 to 1,148.20.

The American Stock Exchange composite index ended 1.70 points lower to 847.68, while the Wilshire 5000 shed 110.33 points to close at 10,708.24.

Big Board volume was up to 910 million shares from 880 million Friday, while Nasdaq volume remained nearly unchanged at 1.330 billion against 1.338 billion Friday. Advancers led decliners 1,602 to 1,570 on the New York Stock Exchange, while gainers beat retreaters 1,940 to 1,848 on Nasdaq.

Analysts said stocks drifted lower in light trading as some professional investors adjusted their portfolios with some last minute window dressing.

But, experts noted most investors opted for the sidelines in a week that will be marked by the release of a cluster of crucial economic reports.

On the economic front, business conditions in the New York metro area showed some tentative signs of stabilization in December from the tailspin they saw in the prior two months.

The National Association of Purchasing Management-New York business conditions index rose to 252.3 in December from 246.2. November had been the lowest level since February 2000.

The jump was driven by a return to positive territory for purchasing managers' view of current conditions, manufacturing, and the service industry.

The current conditions index rose to 62.2 from 34.4 in November. The manufacturing index rose to 72.6 in December from 49.9 in November. The non-manufacturing index rose to 61.0 in December from 32.7 in November. A reading below 50 denotes expansion while a below-50 reading indicates contraction.

Despite growing joblessness in the region, growing weakness in the New York City budget, and recent declines in some real estate values, the area economy showed some signs of that a recovery is starting to take shape.

"There are scattered signs of stabilization emerging in several industries. The tourism industry is experiencing a good-sized snapback during this holiday season ... and the residential real estate price skid has ebbed, if not entirely ended," said the report.

NAPM-NY's business outlook index also showed a robust return to an expectation for growth in the months to come, rising to 60.0 in December from 45.8 in November.

Meanwhile, Milwaukee's economy continued to contract in December, registering a slightly weaker performance compared with November. In its business survey, the Milwaukee National Association of Purchasing Management's Index for December declined by 1 point to 44 points.

The prices paid index rose 4 points to 46 points in December, the Milwaukee NAPM said. The new orders index declined 5 points to 41. Production increased 1 point to 42.

And, the Cincinnati-area manufacturing sector continued to contract in December, according to data released by the Cincinnati chapter of the National Association of Purchasing Management.

Forty percent of respondents to the Report on Business said new orders levels had decreased, as compared with 29 percent the previous month, while 22 percent reported an increase as compared with 17 percent last month.

Backlog of orders decreased at a slightly lower rate than last month. Production decreased at a moderately greater rate than last month, the Cincinnati NAPM said.

Employment decreased at a similar rate to last month, with 47 percent of respondents reporting a decrease in employment.

Looking ahead to later in the week, analysts said investors are awaiting Wednesday's reading from the National Association of Purchasing Managers on economic activity in the manufacturing sector, which declined for the 16th consecutive month during November.

The group's much watched NAPM index, which rose 4.7 percentage points to 44.5 percent in October, is expected to improve to 45.8 percent during December.

The index is closely watched by Wall Street because a reading below the key 50 level indicates the sector comprising one-fifth of the economy is shrinking.

The index has stayed below the 50 level every month since dropping to 49.9 in August 2000.

A reading above 50 percent indicates that the manufacturing economy is generally expanding.

Also on tap is the Labor Department's much-watched monthly reading on unemployment due out Friday.

The government agency is widely expected to report the nation's unemployment rate climbed to 5.8 percent during December from 5.7 percent in November, while the overall economy is expected to show a loss of 225,000 jobs after losing 331,000 non-farm payroll jobs in November.

Since the recession began in March, the economy has lost 1.2 million jobs and that compares with 1.4 million lost in the first eight months of the 1990-1991 recession, when the workforce was smaller, and a 1.1 million decline in the 1981-1982 recession.

Rising unemployment is one reason analysts expect the Federal Reserve policy makers to continue to lower interest rates.

Fed officials have said they are concerned about consumer spending, which accounts for two-thirds of the economy. They have said the risk is that job losses will impair Americans' ability to spend.

The central bank has lowered the target for the federal-funds rate by 4.25 percentage points to a 40-year low of 1.75 percent this year in a campaign to boost economic growth.

Analysts noted the economic slowdown has been hard on companies. In order to cope with slumping demand, corporations have laid of workers and have sharply cut production.

But, analysts noted when Federal Reserve officials meet at the end of January, the mood will be considerably better than at their other meetings following the Sept. 11 terrorist attacks when fear of an economic free fall prompted half-percentage point cuts in interest rates each time.

But consumer spending has stabilized rather than spiraled downward, while stock prices have more than recovered their post-attack losses.

Meanwhile, U.S. Treasury prices inched higher amid very quiet trading in a shortened, close-of-the-year session. The 10-year bond rose 15/32 to 99 20/32. Its yield, which moves in the opposite direction of its price, slipped to 5.05 percent from 5.11 percent late Friday.

The Bond Market Association, an industry group, has recommended an early 2 p.m. EST close for U.S. bond markets.

In Europe, stock prices ended modestly lower in light pre-holiday trading on the London International Stock Exchange, pressured by weakness in the banking sector. London's blue-chip FTSE-100 index lost 25.0 points, or 0.50 percent, to 5,217.4 in the holiday shortened session. But, for the year, the FTSE 100 Index fell 1,005.0 points, or 16.2 percent, its second consecutive year-on-year decline. The last time the blue-chip index fell back for two years in a row was in 1973-74.

Analysts said bank stocks came under pressure amid concerns about the economic crisis in Argentina and rising tension in India and Pakistan.

The mood was compounded by rising military tension between India and Pakistan, and the weekend resignation of Argentina's interim president Adolfo Rodriguez Saa, which renewed fear Argentina's economic crisis will escalate or spread to other countries, experts said.

In trading, Carphone Warehouse (OTCBB:CRWHF) topped the actives, falling 12.2 percent following a report of sharply lower British handset sales in the pre-Christmas sales rush.

Health and beauty retailer Boots added 1.0 percent, Alliance & Leicester rose 1.3 percent but HSBC Bank lost 1.1 percent and Lloyds TSB Bank also lost 1.1 percent.

Meanwhile, markets in Germany were closed for the New Year's holiday. The blue-chip German DAX index fell 19.79 percent this year to end 2001 at 5,160.10 last Friday.

In France, markets were also closed. But, the key CAC-40 index fell 21.97 percent for the year, settling at 4,624.58 on Friday.

Earlier in Asia, prices on the Hong Kong Stock Exchange ended slightly lower in light trading, pressured by some profit taking on the last trading session of the year. Hong Kong's blue-chip Hang Seng Index slipped 34.38 points, or 0.30 percent, to 11,397.21. But, for the year the index dropped 24.5 percent in value.

Analysts said the market may remain subdued for the rest of the week on renewed concerns about the crisis in Argentina, where President Adolfo Rodriguez Saa resigned Sunday after only a week in office and key U.S. data due Thursday and Friday.

Meanwhile, prices on the Taiwan Stock Exchange ended the final day of the year higher. The key Taiwan Stock Exchange Weighted Index rose 2.83 percent to 5,551.24, lifted by strength in chipmakers. For the year, the index rose 17.14 percent.

The performance is all the more remarkable considering Taiwan is in its worst recession on record, likely to see its economy drop 2 percent this year.

Elsewhere around the Pacific region, prices on the Australian Stock Exchange ended slightly lower as some investors were caught off-guard after the price index futures contract closed surprisingly early on the final day of 2001.

Generally, Australian investors wait until around the final bell at end of each quarter to offload stock and readjust their portfolios. But market administrators closed the December SPI contract soon after the opening bell following damning complaints about stock manipulation earlier this year.

The All Ordinaries index eased 3.90 points, or 0.10 percent to 3,359.90. But, for the year the index rose 6.50 percent in value.

Meanwhile, Japan's stock market was closed for New Year's Eve and will remain closed through Friday, when stocks will trade for half a day. They will close again next Monday.

But the Nikkei index lost 24 percent during 2001, finishing the year at 10,542.62 while the Topix index sank 20 percent over the course of the year, to end at 1,032.14.

Markets in South Korea were also closed on Monday, but will resume trading on Wednesday. South Korea was one of the highlights of Asian trade this year, benefiting from attempts to change the way Korea's economy works. The Korean Stock Exchange Composite Index ended 2001 up 37 percent in value at 693.70.