Stocks bounced off their worst levels but still ended in negative territory Monday, as initial euphoria over Cyprus fizzled and even after Eurogroup head's Jeroen Dijsselbloem backtracked on his previous comments that the island nation's bailout is a template for bank rescues.
Stocks slumped near session lows shortly after the open after Dijsselbloem said the Cyprus rescue represented a new template for resolving euro zone banking problems and that other countries may have to restructure their banks. But the spokeswoman for Dijsselbloem backtracked on the comments.
The Dow Jones Industrial Average finished lower, dragged by Bank of America and 3M. Earlier in the session, the blue-chip index briefly hit a fresh intraday high for the ninth time. The index still remains on track for its best first-quarter percentage gain since 1998.
The S&P 500 and the Nasdaq also closed in negative territory. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rallied above 14.
(Read More:Why the S&P 500 Just Can't Break its Record High)
All key S&P sectors were in the red, led by industrials and materials.
(Read More: Where's the Long Awaited Market Correction?)
"Investors need to keep an eye on Cyprus, but the situation is nowhere near the magnitude of the Greece crisis in the Fall of 2011," wrote Randy Frederick, managing director of active trading and derivatives at Charles Schwab. "With the S&P 500 up sharply in 2013 there are risks; however, the risks are substantially lower this time and that means traders should consider a correction or any pullbacks to be a buying opportunity."
The euro fell below $1.29 against the U.S. dollar, briefly tumbling to its lowest level since mid-November.
"This is evidence of a bigger problem: the lack of coherent leadership in the EU," said Brian Battle, director at Performance Trust Capital Partners. "They're proscribing austerity and pain rather than competitiveness and growth."
Meanwhile, a Central Bank source told Reuters that most Cyprus banks would remain shut until Thursday, reversing an earlier decision which said most banks would reopen on Tuesday after a week-long shutdown. Earlier, the Central Bank had announced most banks would open on Tuesday, with the exception of Popular Bank and Bank of Cyprus, the island's two largest lenders which would reopen on Thursday.
Cyprus and its international lenders reached a deal merely hours before a deadline to resolve the island nation's financial crisis and avert the country's exit from the euro zone. The 10 billion euro ($13 billion) deal involves the winding down of Cyprus' second largest lender, the Popular Bank of Cyprus, and imposes a levy on uninsured deposits over 100,000 euros ($130,000) in Cypriot banks.
(Read More: Cyprus Relief: Why the Rally May Be Short Lived)
"Despite a deal being struck for Cyprus, it will set an unsettling precedent for future bailouts and investors will once again be concerned over the security of their bank deposits," wrote Mike McCudden, head of derivatives at stockbroker Interactive Investor. "Furthermore, investors should question why the regulators allowed the Cypriot banking system to rise to this size, given the experiences in Iceland and Ireland."
Among earnings, Dollar General rose after the discount retailer posted earnings that beat expectations and said this year's sales growth could top the strength it saw in 2012.
Apollo Group surged to lead the S&P 500 gainers after the for-profit education company posted a better-than-expected profit and reaffirmed its full-year forecast.
Elsewhere, shares of Dell jumped after the company confirmed it had received competing offers from Blackstone Group and billionaire investors Carl Icahn as the computer giant looks to go private. The offers come as the company agreed to a $24.4 billion deal to be taken private by private equity firm Silver Lake.
Facebook declined, falling to its lowest level this year, after U.S regulators approved a plan to compensate market makers who lost money in the social-media giant's IPO on the Nasdaq last May.
Apple traded higher after the tech giant acquired WiFiSlam, a startup company that makes mapping applications for smartphones.
Also among techs, BlackBerry extended sharp losses from last week after the smartphone maker's new BlackBerry Z10 launch failed to generate buzz. In addition, Goldman Sachs cut its rating on the company to "neutral" from "buy."
Vodafone rallied amid a U.K.'s Sunday Times report that said telecommunications company was looking to sell its 45 percent stake in its U.S. Verizon Wireless unit.
Meanwhile, New York Fed President William Dudley said the Federal reserve must remain very accommodative because the labor market remains "far from healthy" despite some recent overall economic improvement.
Information from Reuters was included in this report.
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