NEW YORK (CNN/Money) - Weak quarterly results from Alcoa, accounting problems at Merck and a sliding dollar all contributed to stock selling Monday, with indexes retreating from the sharp gains of the previous session.

The Nasdaq composite fell 42.75 to 1,405.61. The Dow Jones industrial average lost 104.60 to 9,274.90. The Standard & Poor's 500 lost 12.05 to 976.98.

Investors pared some of the strong gains made in Friday's holiday-shortened stock session, when the Dow rose more than 300 points and the Nasdaq surged about 5 percent.

"We saw a pullback from the [Friday] rally, back into the negative, which is the trend it's been in and probably will continue to be," Ted Weisberg, a trader at Seaport Securities, told CNNfn's Street Sweep.

No major companies are expected to release results Tuesday, and no key economic data are scheduled for release. Instead, on Tuesday investors will take in a highly anticipated speech from President Bush, who is expected to address the issue of corporate accountability.

Despite the selling, the declines could have been much sharper, some market watchers said.

"I would have thought it would have been a lot worse," said Peter Cardillo, director of research at Global Partners Securities. "For now, the market is doing just fine, considering everything."

A Securities and Exchange Commission filing Friday showed that drugmaker and Dow component Merck (MRK: Research, Estimates) reported more than $14 billion, or 10 percent of its revenue since 1999, that was never actually collected by the company. The filing was made in regard to the initial public offering of Merck's Medco pharmacy benefits unit, which is scheduled later this week.

Aluminum producer Alcoa (AA: Research, Estimates), also a Dow component, reported sharply lower second-quarter profit that missed expectations. The company earned 27 cents a share, a penny shy of estimates and well below the 48 cents earned a year earlier. However, CEO Alain Belda offered a positive outlook for the rest of 2002, saying that the company should see improving profitability.

Shares of Intel (INTC: down $1.04 to $18.50, Research, Estimates) led the techs lower. The No. 1 chipmaker began shipping a new processor Monday and plans to make additional software and services available by the end of the quarter.

Billionaire Berkshire Hathaway (BRK.B: Research, Estimates) head honcho Warren Buffett and two other investors will buy $500 million of fiber-optic carrier Level 3 Communication's (LVLT: up $1.47 to $4.36, Research, Estimates) debt, allowing the company to make acquisitions.

"That could be encouraging for telecom investors," Global Partners' Cardillo said.

Brokerage firm Morgan Stanley cut its 2003 earnings-per-share estimates for automakers General Motors (GM: Research, Estimates) and Ford Motor (F: Research, Estimates) due to expectations of lackluster industry vehicle sales.

Shares of tech leader and Dow component IBM (IBM: Research, Estimates) also may be trading lower due to "rumblings of Merck-like problems," said Peter Green, market analyst at MKM Partners.

In the day's biggest deal, online auction site eBay (EBAY: down $4.31 to $56.24, Research, Estimates) said it will buy online payment system PayPal (PYPL: up $1.61 to $21.61, Research, Estimates) in a stock swap worth $1.5 billion.

Shares of telecom WorldCom (WCOME: down $0.01 to $0.24, Research, Estimates) remained very active. In the latest development, two former executives -- ex-CEO Bernard Ebbers and ex-Chief Financial Officer Scott Sullivan -- invoked their right to avoid testimony at a congressional hearing that began Monday afternoon.

"We're seeing some typical selling after a sharp run-up," said MKM's Green. "People are buying the safe names, like Philip Morris (MO: Research, Estimates) and Coca-Cola (KO: Research, Estimates), and selling anything that seems suspicious."

Treasurys rose, pushing the yield on the 10-year note down to 4.80 percent. Light crude oil futures fell 69 cents to $26.07 a barrel. Gold gained $1.20 to $312.50 an ounce.

In global markets, the Merck report pressured European bourses, while Asian stocks closed lower.

The dollar fell sharply versus the euro and yen after the Japanese finance minister said world financial authorities believe the dollar could fall to post-Sept. 11 lows.

"The dollar's decline is also a key component in today's [Monday] trade, said Jack Ablin, chief investment officer at Harris Trust. "Foreign investors will continue to take their business elsewhere, and there's not much we can do about it."

Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than 10-to-7 on volume of 1.51 billion shares. On the Nasdaq, decliners beat advancers by 3-to-2 as 1.68 billion shares changed hands.