Stocks: A down day in a strong month

Wall Street follows overseas markets lower as nervous investors brace for a choppy September. Disney, Marvel deal fails to improve the mood.

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By Ben Rooney, CNNMoney.com staff reporter

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NEW YORK (CNNMoney.com) -- Stocks closed lower Monday after a big drop in Chinese shares heightened concerns that U.S. markets have risen too far, too fast. But August was a good month for Wall Street.

The Dow Jones industrial average (INDU) shed 47 points, or 0.5%, on the last day of the month. The S&P 500 (SPX) index lost 8 points, or 0.8%, while the Nasdaq composite (COMP) slid 20 points, or 0.9%.

Despite Monday's weakness, the Dow and S&P turned in their best August performance since 2000. For the entire month, the Dow gained about 3.5% and the S&P added roughly 3.3%.

The Nasdaq rose 1.5% in August.

Stocks opened sharply lower Monday, following a 6% drop in the Shanghai Composite index. The selloff in China raised concerns about the global economy and prompted investors to shy away from risky assets.

Oil prices sank nearly 5%, falling below $70 a barrel. That dragged on shares of oil services firms Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500). Industrial names such as Boeing (BA, Fortune 500) and Caterpillar (CAT, Fortune 500) also fell sharply.

Bank stocks, which have led the market higher in recent sessions, came under pressure. Citigroup (C, Fortune 500) was down 4%, while Morgan Stanley (MS, Fortune 500) lost about 2%. Troubled insurance giant AIG (AIG, Fortune 500) fell nearly 12%.

The retreat came despite a pair of big corporate mergers and a stronger-than-expected regional manufacturing report. Analysts said the market's tone is jittery heading into what is expected to be a volatile month.

'September smack down.' September is historically the worst month for stocks and market participants are bracing for a possible pullback following a surprisingly strong summer advance.

Between the March 9 lows and Friday's close, the S&P 500 gained 52%, as investors responded to stronger corporate results and improved economic data. For the year, stocks, as measured by the S&P 500 index, are up nearly 13%.

However, analysts say more concrete signs of economic growth are now necessary to keep the rally going.

"As we head into September, the fundamentals this first week could set the tone for the entire month," said Dan Cook, senior market analyst at IG Markets. As money managers come back from vacation to an uncertain economic outlook, the market could be in for a "September smack down," he said.

Among the fundamental economic indicators due out this week: The ISM index of manufacturing activity and auto sales for August come out Tuesday. On Friday, the Labor Department's monthly employment report is expected to show a slight increase in the nation's unemployment rate.

Mergers and acquisitions: Walt Disney (DIS, Fortune 500) said it would acquire comic book publisher Marvel Entertainment (MVL) for approximately $4 billion. Shares of Marvel surged 25%.

In other deals, oilfield services company Baker Hughes (BHI, Fortune 500) said that it would purchase rival BJ Services (BJS, Fortune 500) in a cash-and-stock deal worth approximately $5.5 billion.

Economy: A report showed manufacturing activity in the Midwest was stronger than expected during August.

The Institute for Supply Management's Chicago PMI rose to 50 in August from 43.4 in July. Economists surveyed by Briefing.com had forecast a reading of 47.2.

The report comes one day before the ISM releases its national manufacturing report, which is forecast to rise to a level signaling expansion for the first time since January 2008.

Other markets: In currency trading, the dollar fell against the euro and retreated versus the yen.

Oil for October delivery was down $3.07 to settle at $69.68 a barrel in New York.

Bond prices rose, with the benchmark 10-year note gaining 9/32 to 101-23/32. Its yield, which moves inversely, was 3.41%.

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