Updated from 4:19 p.m. EDT

Stocks in the U.S. closed lower after a choppy session Monday as selling in the financial sector and a drop in energy shares sent the major indices into the red.

The

Dow Jones Industrial Average

lost 56.58 points, or 0.5%, at 11,231.96, and the

S&P 500

fell 10.59 points to 1252.31. The

Nasdaq

held up the best, slipping 2.06 points to 2243.32.

For the major averages, the day began with a rally, but the upward move was halted, and by the midpoint stocks were well into negative territory. The market then rebounded late before finally settling lower.

Government-sponsored mortgage buyers

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

were two of the hardest hit on Wall Street, both falling more than 15% after Lehman Brothers said new accounting requirements might force them to raise more capital.

The downturn was also evident in the broader group. The NYSE Financial Sector index slid 2.4%, and the Amex Securities Broker/Dealer index slumped 2.7%. The KBW Bank index was down 3.7%.

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Among individual Dow stocks,

Bank of America

(BAC) - Get Report

lost 3.9%, and

Citigroup

(C) - Get Report

was off 2.5%.

Weakness in energy shares also helped to drive the overall market lower. As oil futures tumbled nearly $4 a barrel to $141.37, influential stocks in the group struggled.

Exxon Mobil

(XOM) - Get Report

and

Chevron

(CVX) - Get Report

, fellow industrials, each shed more than 1%.

Domestic shares hadn't traded since last Thursday, and that was a half day. The market was closed Friday for the Independence Day holiday. As the new week got underway, investors were greeted with a host of merger news, and the dealmaking appeared to help brighten the mood before sellers asserted themselves at midsession.

The biggest transaction will see Germany's Fresenius, a seller of intravenous drugs, buy

APP Pharmaceuticals

(APPX)

for roughly $3.7 billion.

Also, China Oilfield Services, a unit of

CNOOC

(CEO) - Get Report

, is set to pay $2.5 billion for Norway's Awilco Offshore.

Back in the U.S., the directors of

Anheuser-Busch

(BUD) - Get Report

could be in for a fight to keep their jobs after Belgium's InBev, which is trying to take over the Budweiser maker for $46 billion, said it would try to replace the board.

On the friendlier side,

GE's

(GE) - Get Report

NBC Universal division is being joined by

Blackstone

(BX) - Get Report

and Bain Capital to purchase The Weather Channel. Terms of the acquisition weren't released, but reports put the value at around $3.5 billion.

Unable to prop up the tech sector was

Yahoo!

(YHOO)

, whose shares advanced nearly 12% on word that activist investor Carl Icahn has talked with

Microsoft

(MSFT) - Get Report

CEO Steve Ballmer about renewing an effort to acquire the Internet portal if a new board is installed.

Elsewhere,

General Motors

(GM) - Get Report

, whose shares have been trading at multidecade lows amid worries about its financial health, may be close to firing thousands of white-collar workers, according to a published report.

The Wall Street Journal

also said GM might part ways with or end additional brands.

Away from equities, Treasury prices were higher, with the 10-year note up 19/32 in price, yielding 3.90%, and the 30-year bond rising 26/32 to yield 4.48%. The dollar was rising against the yen, the euro and the pound.

Overseas, most major markets were stronger. Tokyo's Nikkei added 0.9% to 13,360, and Hong Kong's Hang Seng jumped 2.3% to 21,913. In Europe, London's FTSE, Frankfurt's Dax and the Paris Cac were better by at least 1.8%.

This article was written by a staff member of TheStreet.com.