Stocks decline on Europe concern after last week’s rally

Stocks traded slightly lower on Monday, giving up a portion of the solid gains realized in the past two weeks.

The Dow Jones Industrial Average fell 40.27 points to 13,553.10. The Nasdaq Composite Index dropped 5.28 points to 3,178.67, and the S&P 500 Stock Index was down 4.58 points to 1,461.19.

The markets moved lower after the release of the Empire State index, a measure of manufacturing activity in the New York region. The index fell to the lowest level since November 2010.

Oil prices dropped sharply on rumors the Obama administration is considering a release of oil reserves. Crude fell $2.38 to $96.62 a barrel. Gold was off $2.10 to $1,770.60 an ounce.

Bank of America Corp. (NYSE: BAC) and Morgan Stanley (NYSE: MS) slid more than 2.4 percent after two weeks of gains. Alcoa Inc. (NYSE: AA) tumbled 2.6 percent as commodity shares plunged. Cliffs Natural Resources Inc. (NYSE: CLF) lost 7 percent after its rating was cut by JPMorgan Chase & Co. (NYSE: JPM).

“It looks like we need to take a small breather after the sizable rally that we’ve had,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab Corp. (NYSE: SCHW). His firm has $1.83 trillion in client assets. “There’s the potential for a small pullback, but I think we will move back into the bull territory later in the week unless there’s an unexpected negative news event.”

The S&P 500 rallied last week to the highest level since December 2007 as the Federal Reserve’s plan to buy mortgage securities fueled demand for riskier assets. Commodity, financial and industrial shares had the biggest gains among 10 groups in the benchmark gauge, helping to extend its two-week advance to 4.2 percent. The index is about 7 percent away from its all-time high set in October 2007.

Stocks fell Monday as European Union finance ministers failed to agree on a timetable for a more unified banking sector and clashed over terms of bailout requests and the role of the European Central Bank at a meeting Friday in Cyprus.

Citigroup Inc. (NYSE: C) became the latest bank to cut its growth forecast for China. At least 13 banks and brokerages have reduced their 2012 economic growth forecasts for the world’s second-largest economy this month.

Financial and commodity shares had the biggest declines among 10 groups in the S&P 500. The Morgan Stanley Cyclical Index tumbled 1.2 percent after rallying for four straight days. The Dow Jones Transportation Average slipped about 1.5 percent, and the S&P Supercomposite Homebuilding Index lost 1.9 percent after rallying 8.5 percent last week.

Netflix Inc. (Nasdaq: NFLX) fell 5.8 percent to $57.02. The world’s largest video-subscription service was rated "underperform" in new coverage at Macquarie Capital USA Inc.

Boeing Co. (NYSE: BA) lost 1.9 percent to $69.92. Oppenheimer & Co. analyst Yair Reiner said shares of the world’s largest maker of cargo aircraft may fall, citing GEnx engine issues after one cracked on a Boeing 787 Dreamliner during testing in Charleston, S.C., on July 28, spewing hot metal parts.

As politicians debate whether Americans are better off than they were four years ago, the stock market is saying yes. With 50 days before the national election, the S&P 500 has rallied 82 percent and touched a four-year high since President Barack Obama took office.

The advance puts the gauge closer to the all-time high than any of the world’s biggest stock markets, data compiled by Bloomberg show. The benchmark index of American equity is trading at 14.9 times reported earnings, the biggest discount to MSCI’s global measure since March 2010.

“We are in a healthier state right now,” said Chris Hyzy, who helps oversee about $325 billion as chief investment officer of U.S. Trust in New York. “Next year, we think the growth clip in the United States and the globe is going to be better than expected. Over the next three years, we are bullish.”