Techs rise, blue chips slide
A rally in big technology shares helps lift the Nasdaq, but economic fears limit bigger gains.
NEW YORK (CNNMoney.com) -- A tech advance boosted the Nasdaq Monday, but the Dow slumped to more than two-month lows on jitters about the economy and gridlock surrounding the economic stimulus package.
The Dow Jones industrial average (INDU) lost 64 points, or 0.8%. The Dow briefly fell to 7,867, touching the lowest level since November, when the market carved out what some pros think were bear market lows.
The Standard & Poor's 500 (SPX) index ended just below unchanged. The Nasdaq composite (COMP) gained 18 points, or 1.2%.
Stocks slipped in the early going but managed to cut losses as investors breathed a sigh of relief after the release of a slightly better-than-expected manufacturing report.
The Dow and S&P 500 finished their worst January ever Friday as investors eyed abysmal reports on economic growth and quarterly earnings. In the month, the Dow lost 8.8% and the S&P 500 lost 8.6%.
After a terrible month, select stocks were managing gains Monday. But any advance was likely to be short-lived, said Dean Barber, president at Barber Financial Group.
"I think it's starting to sink in that the issues that are upon us today might be a bit more serious than what can be taken care of in a stimulus package," Barber said.
Some stocks have been beaten down so much that they are starting to look appealing, but that is countered by the big headwinds in the economy, said Jack Ablin, chief investment officer at Harris Private Bank.
"Anyone buying stocks has to be looking past this year to justify a purchase," said Jack Ablin, chief investment officer at Harris Private Bank.
Tuesday morning brings earnings from Dow stock Merck (MRK, Fortune 500) as well as Motorola (MOT, Fortune 500) and UPS (UPS, Fortune 500). All three are due to report results before the start of trade.
On the economic front, the December Pending home sales index is due in the early morning. It's expected to show no change after sliding 4% in the previous month.
Economy: Consumer spending continued to decline in December, according to a government report released Monday. Personal spending fell 1% after falling a revised 0.8% in the previous month. Economists surveyed by Briefing.com thought it would fall 0.9%. Personal income dropped 0.2% versus forecasts for a drop of 0.4%. Income dropped 0.4% in the previous month.
Another report showed a slight improvement in manufacturing activity in January, rising from a record low. The Institute for Supply Management's manufacturing index rose to 35.6 in January from a revised 32.9 in December. Economists expected the index at 32.5. The number still reflects a recessionary environment.
A third report showed construction spending fell a worse-than-expected 1.4% in December, after falling a revised 1.2% in the previous month. Economists thought it would fall 1.2%.
Senate debate: After a narrow party-line approval in the House of Representatives last week, the economic stimulus package moved to the Senate Monday. Among the topics of debate: ways to spur housing sales and to help current homeowners avoid foreclosure. (Full story)
Stock movers: Bank of America (BAC, Fortune 500) tumbled 8.8% on published reports that a group of angry shareholders are planning to demand that Chairman and Chief Executive Officer Ken Lewis be removed at the upcoming annual meeting.
BofA was the Dow's biggest loser. Other big decliners included Boeing (BA, Fortune 500), 3M (MMM, Fortune 500) and General Electric (GE, Fortune 500), which tumbled amid the economic worries.
Dow component Procter & Gamble (PG, Fortune 500) fell for a second session. On Friday, it reported a higher quarterly profit that was short of forecasts and warned that full-year earnings won't meet its earlier forecast. Shares slipped 3%.
Microsoft (MSFT, Fortune 500) and Intel (INTC, Fortune 500) were among the Dow's gainers, rising along with the broader technology sector.
Macy's (M, Fortune 500) shares lost 4% in active New York Stock Exchange trading after the company said it was cutting 7,000 jobs or 4% of its total workforce and trimming its dividend.
Automaker Chrysler is offering buyouts to all hourly workers in its newest attempt at cutting costs. The news comes one day before Chrysler and other automakers report what are expected to be terrible January sales.
Market breadth was mixed. On the New York Stock Exchange, losers beat winners eight to seven on volume of nearly 1.33 billion shares. On the Nasdaq, advancers topped decliners seven to six on volume of 2.03 billion shares.
Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.72% from 2.85% Friday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates were mixed. The 3-month Libor rate rose to 1.22% from 1.18% Friday, according to Bloomberg.com. Overnight Libor fell to 0.28% from 0.30% Friday. Libor is a bank-to-bank lending rate.
Other markets: In global trading, Asian markets tumbled, while European markets ended lower.
The dollar fell versus the euro and yen.
U.S. light crude oil for March delivery fell $1.60 to settle at $40.08 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery fell $21.20 to settle at $907.20 an ounce.
Gasoline prices rose 1.3 cents to a national average of $1.88 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA. 
