(

Updated from 4:13 p.m. EDT

)

Wall Street kicked off the week on the wrong foot, with most stocks finishing the session in the red. Investors remained skeptical of future earnings and kept their wallets closed today, forgoing the hype that surrounded one drug giant's quarterly report and some hot telecom merger news.

The

Dow Jones Industrial Average closed down 46.67, or 0.4%, to 10,686.89. The broader

S&P 500 skidded 15.67, or 1%, to 1464.52. The

Nasdaq Composite Index ended off 113.28, or 2.7%, to 3981.17.

The small-cap

Russell 2000

was down 8.89, or 1.7%, to 513.81.

Going into this morning's open, the stock market had all the makings of a solid rally. There was the announcement that Germany's

Deutsche Telekom

(DT) - Get Report

finalized its $50 billion cash and stock offer for U.S. wireless firm

VoiceStream Wireless

(VSTR)

. There was also a report in

The Wall Street Journal

that

Nortel Networks

(NT)

is well into talks to sell its optical-parts unit to

Corning

(GLW) - Get Report

in a deal that could be valued at over $100 billion.

TheStreet.com's

Scott Moritz covered the Nortel/Corning

story earlier today.

But despite all those positives, and a preopen rally in the futures market, stocks have struggled all day. It's troubling -- when stocks can't rally on good news, market participants begin to worry that all the good news is priced into the market, making it vulnerable to a fall.

"There's a concern we're seeing momentum flag," said Jeff deGraaf, senior technical analyst at

Lehman Brothers

. "It's going to be pretty sloppy unless leadership can reestablish itself."

Still, Lehman's technical analysts are constructive on the market. "We don't think there is a lot of risk," allowed deGraaf. "Our sense is that we meander higher."

Meandering was certainly the

word of the day.

TheStreet.com Internet Sector

index closed down 45.03, or 5.4%, to 783.69 on its first day of trading with 24 components instead of 20.

TheStreet.com

last week ran a

story previewing the change, and our

FAQ on the DOT offers more background information.

TI Beats the Street

After the close,

Texas Instruments

(TXN) - Get Report

beat analysts' estimates by one cent by reporting second-quarter earnings of 31 cents. The 25-analyst estimate was for a 30-cent gain, according to

First Call/Thomson Financial

.

Ahead of its earnings, the semiconductor manufacturer's shares were little changed, at 63 1/2.

Big Week for Data

Stocks may have some trouble going significantly higher this week, ahead of a couple of key economic reports at the end of the week. Thursday brings the second-quarter

Employment Cost Index

, the key measure of wage inflation said to be one of

Federal Reserve

Alan Greenspan's favorite bits of economic data. And on Friday, we have second-quarter

Gross Domestic Product

.

If either number comes in too hot, the sense that the economy is beginning to slow and that the Fed won't be raising rates anytime soon may get challenged. Though it might take some pretty strong data to convince some market participants that an economic soft landing is anything but a

fait accompli

.

"I'm becoming more optimistic, not less optimistic," said Hugh Johnson, chief investment officer at

First Albany

. "The reason I believe the slowdown is for real is that that's been the message of the stock and bond markets. The stock market has been trendless, bond prices have gone up, the yield curve has flattened and investors have bought those segments of the stock market that they believe will do well when the economy slows."

'Bear'ing Up Well

Shares of investment bank and brokerage firm

Bear Stearns

(BSC)

surged today in the wake of a research report by a

Salomon Smith Barney

analyst who said that Bear Stearns "acknowledges it would consider acquisition offers."

The report, dated Friday, written by Guy Moszkowski of Salomon, said he met with Bear Stearns' CEO James Cayne, who "made it quite clear that an acquisition is not out of the question" and that a buyer "would have to be willing to pay at least four times book value, or nearly $120 per share today." Moszkowski pointed out that he didn't "believe any particular deal is on the near-term horizon, and Cayne noted that, to date, most talks have ended relatively quickly." Bear Stearns lifted 7.6%.

The

American Stock Exchange Broker/Dealer Index

ended fractionally higher, up 0.7%.

And speaking of financials,

American Express

(AXP) - Get Report

, after hitting an intra-day trading high of 59 3/4, slipped almost 4% after posting second-quarter earnings of 54 cents a share, a penny better than the 16-analyst estimate and up from the year-ago 47-cent profit.

TheStreet.com/NYTimes.com

covered the earnings in a

story this afternoon.

Money center banks, which got a boost from buyers during last week's rally, couldn't sustain the pop Friday and were showing weakness today. "We're seeing some selling across the board in the money centers," said Patrick Boyle, director of trading at

Credit Suisse First Boston

. "With the strength on Thursday, people were looking for follow-through on Friday

and didn't receive it." Boyle noted

Citigroup

(C) - Get Report

, which finished off fractionally and

Chase Manhattan Bank

(CMB)

, which lost 2.%.

With the price of crude oil declining, oil stocks continued were slumping. The

American Stock Exchange Oil and Gas Index

shed 9.2%.

ExxonMobil

(XOM) - Get Report

and

Conoco

(COC)

were both trading lower ahead of their second-quarter earnings reports which are due today.

The oil sector's losses were spilling over into the oil services sector, with the

Philadelphia Stock Exchange Oil Services Index

slid 4.5%.

Transocean Offshore

(RIG) - Get Report

fell 4.3% and

Baker Hughes

(BHI)

skidded 3.6%.

Market Internals

Breadth was negative on moderately light volume.

New York Stock Exchange: 1,104 advancers, 1,746 decliners, 873 million shares. 54 new 52-week highs, 35 new lows.

Nasdaq Stock Market: 1,386 advancers, 2,658 decliners, 1.435 billion shares. 54 new highs, 104 new lows.

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Most Active Stocks

NYSE Most Actives

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Sector Watch

Crude oil's price decline put the airlines and transports back in flight. The

American Stock Exchange Airline Index

lifted 1.46, or 0.8%, to 171.03, with gains from

Southwest

(LUV) - Get Report

and

AMR

(AMR)

.

The

Dow Jones Transportation Average

bounced 11.67, or 0.4%, to 2820.09.

A good earnings report from

Merck

(MRK) - Get Report

acted as a salve for an ailing drug sector. Merck earned 73 cents per share in the second quarter, 4 cents ahead of

First Call/Thomson Financial's

consensus estimate. Merck tacked on 8.8%. The

American Stock Exchange Drug Index

was up 2.6%.

Among other pharmaceutical companies,

Eli Lilly

(LLY) - Get Report

was higher 3.3%,

Johnson & Johnson

(JNJ) - Get Report

was up 2.3%, Pfizer mounted 3.6% and

American Home Products

(AHP)

added 1.8%.

Semiconductor stocks, a leadership group that has lately come under some serious pressure, were mixed today. Despite earlier session gains,

Intel

(INTC) - Get Report

finished off 0.6%.

PC makers were among the poorest performers, after two market research firms said that PC sales have slowed, particularly in the United States.

Dataquest

said that U.S. sales were up just 12% from the year-ago quarter, compared with worldwide growth of 18%.

International Data Corp.

said U.S. unit-shipments grew at 7%.

Dell

(DELL) - Get Report

slid 11.3%,

Hewlett-Packard

(HWP)

fell 4.1% and

Compaq

(CPQ)

traded 4% lower. The

Philadelphia Stock Exchange Computer Box Maker Index

was down 4%.

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Bonds/Economy

Treasuries are surrendering some of last week's big gains on light volume and little news. Greenspan is slated to repeat last week's

Humphrey-Hawkins testimony for the House Banking Committee tomorrow, but apart from that, the bond market has little to focus on before Thursday. That day brings key economic data in the shape of the second-quarter

Employment Cost Index

and the June

durable goods orders

report.

The benchmark 10-year Treasury note lately was down 7/32 to 103 12/32, lifting its yield to 6.031%.

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International

European markets put in a mixed day.

London's

FTSE

finished up 2.9 to 6381.3 in thin trading.

Across the channel, Frankfurt's

Xetra Dax

was down in late trading, as sharp falls in blue-chips Deutsche Telekom, retailer Metro and HypoVereinsbank weighed against strong rises in

SAP

(SAP) - Get Report

and

Siemens

(SIEM)

. The index was recently 44.8, or 0.6% lower, at 7328.46.

The Paris

CAC

closed up 38.45, or 0.6%, to 6502.57.

The euro was lately trading fairly flat at $0.9315.

Asian markets slumped overnight on the Nasdaq's losses Friday and weakness in domestic techs and telecoms.

In Tokyo, expectations of weak earnings from key electronics makers, which will start to release numbers this week, sent key Japanese stock indices lower today. The

Nikkei 225

index lost 264.37, or 1.6%, to stand at 16,547.12,

The greenback eased slightly against the yen in lethargic Tokyo trading to 108.77. The dollar was recently trading at 108.92 yen.

Hong Kong's

Hang Seng

index plunged 261.17, or 1.5%, to 17,659.69 on weakness in telecom shares, lead by index heavyweight

China Mobile

(CHL) - Get Report

.

Hutchison Whampoa

slid 1.50, or 1.2%, to 122.00 despite the news that Deutsche Telekom had completed its deal to buy U.S. VoiceStream Wireless. Hutchison owns a 23% stake in VoiceStream.

Korean stocks were the biggest losers in Asia, with the key

Kospi

index sliding 45.17, or 5.8%, to 737.89. A tumble in semiconductor shares triggered the downfall, with

Samsung Electronics

sliding 7.8%.

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