NEW YORK (CNN/Money) - Blue-chip stocks slumped Monday as oil prices hovered near record highs and investors geared up for an expected interest rate hike by the Federal Reserve on Tuesday.

Tech stocks mostly held their own, with some issues moving on merger news.

The Dow Jones industrial average (down 64.28 to 10,565.39, Charts) lost 0.6 percent and the broader Standard & Poor's 500 (down 5.87 to 1,183.78, Charts) index lost 0.5 percent. Both gauges posted bigger losses in late morning trading.

The Nasdaq composite (down 0.28 to 2,007.51, Charts) ended little changed.

Treasury prices inched lower, lifting yields modestly, while the dollar rallied versus other major currencies. Gold tumbled.

"There are a lot of headwinds right now," said Art Hogan, chief market analyst at Jefferies & Co.

"Oil prices are still high," Hogan added, "we've got inflation reports in the next two days and there have been whispers that the Fed could get more aggressive tomorrow, or at least set the stage for more aggressive hikes in the near future."

Worries about inflation and interest rates, which have pressured stocks all year, sent the major gauges lower the last two weeks.

Monday brought some more of the same, with investors awaiting the Fed's decision on rates Tuesday, as well as a February report on producer prices, and Oracle earnings after the bell.

The Fed is widely expected to boost its target for the fed funds rate, an overnight bank lending rate, another quarter percentage point to 2.75 percent.

But of more interest is what Fed policy-makers say, if anything, about the pace of future rate hikes, especially whether they keep the language about raising rates at a "measured" pace. (For more on the Fed meeting, click here.)

"There's a lot of focus on the language," said Tim Heekin, head of stock trading at Thomas Weisel Partners. "People are mostly thinking that they will keep the "measured" for one more meeting, but tomorrow could be the day that it goes."

The February Producer Price Index (PPI) is due Tuesday before the start of trade. Economists surveyed by Briefing.com expect it to have risen 0.3 percent after climbing 0.3 percent in January. The so-called "core" PPI, which excludes often volatile food and energy prices, is expected to show a gain of 0.1 percent in February, after rising 0.8 percent in January.

A recovery in General Motors, which has been sliding for the last week, helped the Dow and the S&P 500 trim losses, but weakness in AIG and other blue chips kept the broad averages under pressure.

The Nasdaq closed at a four-month low Friday after a tough week for stocks that saw oil prices hit record highs. Oil remained a focus for investors Monday but edged back from recent highs.

U.S. light crude oil for April delivery slipped 10 cents to $56.62 a barrel on the New York Mercantile Exchange. On Friday, crude ended at $56.72, an all-time closing high.

Blue chips had a tough session.

Among active issues, American International Group (down $1.86 to $57.90, Research) slid another 3.1 percent after tumbling last week on news that it was replacing its CEO and delaying its annual report due to accounting issues.

Other Dow decliners included Citigroup (down $1.09 to $45.76, Research), DuPont (down $0.76 to $51.38, Research), Home Depot (down $0.89 to $37.99, Research) and Altria (down $1.44 to $63.28, Research). The declines were widespread, with 22 out of 30 Dow stocks ending lower.

The Dow's one big gainer was GM (up $1.07 to $29.69, Research), which bounced 3.7 percent. The automaker has been under fire over the last week after warning that 2005 earnings won't meet estimates. On Sunday, news surfaced that GM plans to reduce the size of its North American white-collar work force.

CNN/Money parent Time Warner (down $0.28 to $18.42, Research) fell 1.5 percent. The Securities and Exchange Commission said it approved a $300 million settlement regarding accounting irregularities at the media company's AOL unit.

On the upside, chipmaker Rambus (up $3.91 to $17.03, Research) rallied nearly 30 percent in active Nasdaq trading on news it had settled a patent dispute with German chipmaker Infineon by entering a broad licensing agreement.

Internet stocks were active and mostly higher following news of a buyout in the sector. IAC/InterActiveCorp (down $0.66 to $21.63, Research) agreed to buy search engine Ask Jeeves (up $4.43 to $28.67, Research) for about $1.9 billion in stock.

IAC shares slid about 3 percent, while AskJeeves surged 18 percent. The Goldman Sachs Internet (Charts) index gained just over 1 percent and was the best performing tech sector of the session.

Also rallying: SunGard Data Systems (up $6.12 to $31.07, Research), the financial services company that soared nearly 25 percent after saying it was in talks to possibly sell the company to an undisclosed buyer.

Monday was heavy with merger news.

In addition to the Ask Jeeves deal and SunGard news, biotech Medicis Pharmaceutical (down $2.57 to $29.11, Research), which makes drugs to treat skin ailments, said it would buy Inamed (up $1.97 to $68.21, Research), a maker of breast implants, for $2.8 billion in cash and stock.

Market breadth was negative and volume was moderate. On the New York Stock Exchange, decliners beat advancers by eleven to five on volume of 1.44 billion shares. Losers topped winners eight to seven on the Nasdaq, where over 1.63 billion shares changed hands.

Treasury prices edged lower, raising the 10-year note yield to 4.52 percent from 4.50 percent late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar rallied versus the euro and yen.

COMEX gold tumbled $8.30 to $431.40 an ounce, falling with other dollar-traded commodities.

In global trade, Asian stocks ended higher and European markets ended mix.