Stocks end strong month with a bout of selling

After giving the stock market a big gain during August, investors still worried about the economy backtracked the final day of the month.

Stocks fell in light trading Monday after a 6.7 percent plunge in China's main stock market sent a wave of selling around the world and added to concerns that stocks have rocketed too high, too fast since hitting 12-year lows in March.

The Standard & Poor's 500 index rose 3.4 percent in August for its sixth straight monthly gain, advancing despite some periodic choppy trading as investors fretted about an economic recovery. It is up 50.9 percent since early March, the best six-month run since 1938.

Monday's trading followed a pattern seen several times during August, with U.S. stocks falling alongside other world markets after China's Shanghai exchange slid on uneasiness about that country's economy. If China is struggling, its problems could affect the recoveries in other countries including the United States.

Meanwhile, investors awaited the start of September, which has been the worst month for the stock market over the past 80 years. And this September begins with many analysts questioning whether investors have bet too soon on a recovery as they sent stocks soaring this year. Reports due Tuesday on manufacturing and employment on Friday could upend the market's six-month-old rally or help push it forward.

The drop in stocks Monday was broad and a 48-point drop in the Dow Jones industrial average was the biggest in two weeks. Energy and materials stocks posted some of the biggest losses as prices for commodities like crude and copper slid on concerns that demand from China would fall.

The retreat in stocks shaved some gains from the best August since 2000. For the month, the Dow rose 3.5 percent and the Nasdaq composite index rose 1.5 percent.

Since its low in March, the Dow is up 45.1 percent and the Nasdaq is up 58.4 percent.

"The markets have been looking like they've been somewhat reluctant to hold their gains over the last couple of sessions," said Blaze Tankersley, chief market strategist at Bay Crest Partners, adding that the news from China gave investors a good excuse to sell.

Still, the market has had some breaks in its march higher. Analysts have been saying all along that some back-and-forth was to be expected as investors, while generally optimistic about the future, have been reluctant to commit wholeheartedly to stocks.

The Dow fell 47.92, or 0.5 percent, to 9,496.38. The S&P 500 index slid 8.31, or 0.8 percent, to 1,020.62, while the Nasdaq dropped 19.71, or 1 percent, to 2,009.06.

The Russell 2000 index of smaller companies fell 7.79, or 1.3 percent, to 572.07.

Three stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 5.3 billion shares, compared with 5.8 billion Friday. Light volume can skew price moves. It is often light in late summer as some traders take vacations.

Japan's Nikkei stock average fell 0.4 percent after the country's opposition party came to power in a landslide victory. Germany's DAX index fell 1 percent, while France's CAC-40 lost 1.1 percent. The London Stock Exchange was closed for a holiday.

China's Shanghai Composite Index is down more than 20 percent from its peak in early August. That leaves the index in bear market territory as investors worry that a tightening in bank lending could hurt the country's economy.

"As China goes, so goes a lot of the rest of the world," said Brian Nick, investment strategist at Barclays Wealth.

Oil tumbled $2.78 to settle at $69.96 a barrel on the New York Mercantile Exchange. Copper fell 4.2 percent. Gold also fell as the dollar was mixed against other major currencies.

Demand for the safety of government debt rose, underscoring the market's uneasiness. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.40 percent from 3.45 percent late Friday.

Commodities producers fell. Aluminum maker Alcoa posted the biggest drop among the 30 stocks that make up the Dow, falling 45 cents, or 3.6 percent, to $12.05. Freeport-McMoRan Copper & Gold Inc. slid $2.50, or 3.8 percent, to $62.98.

Investors looked past an improvement in Midwest business conditions. The Chicago Purchasing Managers index, which measures business activity in Illinois, Michigan and Indiana, jumped to 50.0 in August from 43.4 in July, ending 10 consecutive months of drops.

The index is considered a precursor to the Institute for Supply Management's manufacturing index, which is due Tuesday. A reading above 50 indicates growth in manufacturing, something that hasn't happened since January 2008.

Trading is expected to be light this week but several important reports could sway the market.

The government's monthly jobs report on Friday will draw the most attention. Economists are expecting another 220,000 jobs were lost, down from 247,000 in July.

Last month's report showed an unexpected dip in the unemployment rate and investors are anxious to see whether the rate continues to fall. If fewer jobs are being lost, consumers might start to feel comfortable spending again.

Investors cheered improvements in consumer confidence in August and an upbeat assessment of the economy from Federal Reserve Chairman Ben Bernanke but analysts warn September could prove difficult.

Sam Stovall, chief investment strategist for U.S. equity research at S&P, noted that since 1929 the S&P 500 index has lost an average 1.3 percent for the month. But the index has gained about 2 percent in the 14 Septembers that followed the end of bear markets.