Updated from 4:06 p.m. EDT

In a see-saw session, stocks closed with small losses on the last day of the second quarter, as money managers sought to burnish their portfolios while grappling with mildly disappointing economic data.

Up as high as 8970 and down as low as 9068, the Dow Jones Industrial Average closed down 3.61 points at 8985.44. The Nasdaq, despite being buoyed by positive comments from tech firms, dropped 2.45 points, or 0.2%, to 1622.81, while the S&P 500 fell 1.72 points, or 0.2%, to 974.50.

Some of the earlier negativity was in reaction to a key manufacturing report for June, the Chicago Purchasing Managers' Index, which came in at 52.5, missing the 53 expected by economists but improving from May's mark of 52.2.

"In part because of the nice weather, people came into work cheerful, but then the Chicago PMI was a little depressing. It didn't show that much of a continued gain and set the market back a bit, which is pretty much what we expected, because Friday was a pretty nasty day," said Ken Tower, chief market strategist for CyberTrader. "We didn't even get the late-day rally you get."

Monday was the last chance for fund managers to buy highflying stocks to show investors in their end-of-quarter statements. It also saw some index reshuffling. Because of these events, volume was fairly high on the New York Stock Exchange, which traded in excess of 1.5 billion shares. During this shortened trading week, volume is expected to weaken, making for more volatile trading.

"There's a lot of rebalancing going on. You have the new Russell indices, the new S&P global indices, window dressing, and lots of short-term influences on the market," said Tower. "But certainly, the Fourth of July week and most holidays are low volume weeks and we look for that to be the case this year."

Microsoft ( MSFT) ended up one cent at $25.64 after a report in Barron's argued that the company should pay out more of its staggering cash position in the form of a dividend to investors.

The change to the tax laws governing dividends has already prompted other companies to takes similar steps. On Monday, PetsMart ( PETM) shares gained 7 cents, or 0.4%, to $16.71, after the company announced plans to initiate a quarterly dividend of 2 cents. Also, Cendant ( CD) announced a quarterly dividend of 7 cents a share and said that second-quarter earnings would meet or exceed estimates. Cendant rose 36 cents, or 2%, to $18.42.

In other second-quarter preannouncements, LSI Logic ( LSI) shares dipped 2 cents, or 0.3%, to $7.05 after the chipmaker said revenue would hit the high end of its earlier guidance. EDS ( EDS) reaffirmed cash-flow guidance for 2003 but said it would miss cash-flow expectations for the second quarter. Shares fell 10 cents, or 0.5%, to $21.35.

Seagate Technologies ( STX) announced that earnings would top the Wall Street consensus, boosted its quarterly dividend by a penny and registered a 60-million-share offering by its parent company. Fulcrum Global Partners reiterated its buy rating on the shares, which slid 50 cents, or 2.8%, to $17.68.

A few software makers were among the early gainers. RealNetworks ( RNWK) said it sealed a deal with European cell-phone provider Vodafone ( VOD) to supply streaming-video software to its mobile customers. RealNetworks shares were up 42 cents, or 6.6%, at $6.76, while Vodafone was off 37 cents, or 1.9%, to $19.65.

Intel ( INTC) was also moving up after the chipmaker unveiled its new Itanium 2 server chip, which is aimed at the high-end computer market. Following the announcement, Citigroup Smith Barney upgraded the stock to outperform from in-line, citing the company's ability to keep prices afloat as the rest of the chip industry decelerates. Intel shares gained 24 cents, or 1.2%, at $20.81.

Also in the semiconductor arena, Broadcom ( BRCM) and National Semiconductor ( NSM) said the companies have settled a patent-related lawsuit and agreed on a comprehensive cross-license. Salomon analysts cut National Semi's rating to in-line from outperform on valuation issues. Broadcom rose 46 cents, or 1.9%, to $24.91, while National Semi fell 39 cents, or 2%, to $19.65.

On the merger front, Horizon Organic ( HCOW) shares rose $4.82, or 25.5%, to $23.75 after Dean Foods ( DF) announced plans to acquired the company for $24 a share in cash in a deal valued at $216 million. Dean Foods gained 86 cents, or 2.8%, to $31.46.

Acres Gaming ( AGAM) shares rose 6 cents, or 0.5%, to $11.26 after International Game Technology ( IGT) announced plans to buy the company for $11.50 a share in cash. IGT shares gained 80 cents, or 0.8%, to $102.33.

Two smaller players in the airlines space got a boost, thanks to upgrades from BB&T. SkyWest ( SKYW) shares rose 29 cents, or 1.5%, to $19.08 while Atlantic Coast Air ( ACAI) rose 46 cents, or 3.6%, to $13.31 after the brokerage upgraded them both to strong buy from buy, citing improving relations with bankrupt flyer UAL ( UALAQ).

Sina.com ( SINA), a Chinese Web portal, said second-quarter earnings and revenue would top analyst estimates, announcing plans for an $80 million offering of convertible notes. Shares rose $2.75, or 15.7%, to $20.25, helping boost shares in rival NetEase ( NTES), which were up $2.47, or 7.3%, to $36.47.

InterMune ( ITMN) shares rose $1.02, or 6.7%, to $16.19 after the company announced the resignation of CEO Scott Harkonen, who will stay on as a member of the company's Board. An interim CEO has been announced.

European markets were lower Monday, with London's FTSE 100 closing down 0.9% at 4031, and Germany's Xetra DAX closing down 0.1% to 3221. In Asia, Japan's Nikkei closed 0.2% lower at 9083, while Hong Kong's Hang Seng fell 0.8% to 9577.

Treasuries were higher, with the yield on the 10 year at 3.56%. Crude oil futures rose in London and the dollar rose against the euro and the yen.

The positive sentiment follows a down session for the markets. On Friday, the Dow Jones Industrial Average ended 89.99 points lower at 8989.05. The S&P 500 shed 9.60 points to 976.22, while the Nasdaq Composite fell 8.75 points to 1625.26.

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