Updated from 4:07 p.m. EDT

Stocks closed mixed Monday as a strong manufacturing report appeared to raise worries that the Federal Reserve now has more reason to continue its rate-hiking campaign to help keep inflation under control.

The Dow Jones Industrial Average closed down 33.22 points, or 0.31%, to 10,535.48, while the S&P 500 lost 2.11 points, or 0.17%, at 1226.70. The Nasdaq gained 3.74 points, or 0.17%, to 2155.43. The 10-year Treasury was down 16/32 in price to yield 4.39%, while the dollar rose against the yen and euro.

"It was certainly a day focusing on inflationary data," said Art Hogan, chief market analyst with Jefferies. "My guess is that we'll have more shifting to corporate news. We have a full shift now that the fourth quarter is starting to search for catalysts."

About 1.55 billion shares traded on the New York Stock Exchange, with advancers beating decliners by a 6-to-5 margin. Trading volume on the Nasdaq was 1.83 billion shares, with advancers outpacing decliners 8 to 7.

"This is a market that has made new four-year highs several times this year, but only marginally," said Ken Tower, chief market strategist with CyberTrader. "We're still in an uptrend, but it's very shallow overall."

Crude oil for November delivery finished down 77 cents to $65.47 a barrel, and unleaded gasoline futures lost 3 cents to $2.06 a gallon. Front-month crude is up about 1.1% since last Tuesday's close, as heating oil and natural gas contracts have rallied.

Monday began the last quarter of 2005 with the Institute for Supply Management's manufacturing index for September, which unexpectedly rose to 59.4 from 53.6 in August. Economists expected the ISM index to fall to 52.0.

"This is astonishing," said Ian Shepherdson, chief economist with High Frequency Economics. "Other surveys had suggested companies were dealing with the shock of Katrina and its attendant surge in energy prices better than consumers. One month does not prove anything, but the trend in the headline index has been strengthening since the middle of the year."

Stocks posted a strong third quarter despite terror attacks in London and the effects of hurricanes Katrina and Rita in the U.S. For the third quarter, the Dow gained 2.9%, the S&P rose 3.2%, and the Nasdaq added 4.6%.

Separately, the Census Bureau said that construction spending rose 0.4% August, matching economists' expectations.

Over the course of the session, U.S. automakers released auto- and truck-sales figures for September. The sales data came after a report in The New York Times that said the U.S. government has calculated that General Motors' ( GM) pension fund deficit is $31 billion, though the company has said it's fully funded.

GM posted a decline for September, with sales falling 24% to 349,202 vehicles. Car sales were down 14.5%, while truck sales dropped 29.5%. GM rose 43 cents, or 1.4%, to $31.04.

Ford ( F) also reported a 19% decline in U.S. sales to 228,157 vehicles, as consumers made the move away from SUVs. Still, Ford shares were up 3 cents, or 0.3%, to $9.89.

Meanwhile, DaimlerChrysler ( DCX) reported a 4% rise in sales for September to 193,108 vehicles. That sent the stock up 44 cents, or 0.8%, to close at $53.56.

A number of mergers were in the headlines. NRG Energy ( NRG) said it will purchase privately held Texas Genco for $4 billion in cash and $1.8 billion in stock. NRG will also assume $2.5 billion in debt. Shares of NRG added $5.95, or 14%, to $48.55.

Elsewhere, Symantec ( SYMC) said it will acquire information technology company BindView ( BVEW) for $209 million, or $4 a share, in cash. Symantec rose 16 cents, or 0.7%, to $22.82, while BindView jumped 36 cents, or 10.3%, to $3.86.

Meanwhile, R.H. Donnelley ( RHD) will acquire Dex Media ( DEX) in a deal worth $4.2 billion in cash and stock. Donnelley will assume $5.3 billion in debt as well. Donnelley fell $1.49, or 2.4%, to $61.77. Dex was also lower, down 97 cents, or 3.5%, to $26.82.

Also among companies, homebuilder Lennar ( LEN) finished up 3.3% on news it will be added to the S&P 500 at the close of trading Monday, replacing Gillette. Lennar added $1.95 to $61.70.

Meanwhile, Google ( GOOG) rose despite being passed over in favor of Lennar. After opening lower, Google turned positive on word that it's planning a collaboration with Sun Microsystems ( SUNW). Google recently was higher by $2.22, or 0.7%, to close at $318.68.

Wal-Mart ( WMT) finished lower after the company said it expects September same-store sales to rise 3.8%, in the upper end of its previous forecast range of 2% to 4%. The stock lost 6 cents, or 0.1%, to $43.76.

Hoku Scientific ( HOKU) jumped 15.1% on news that the U.S. Navy has exercised two fuel-cell contract options worth $2.5 million. Hoku was up $1.62 to finish at $12.32.

In ratings moves, J.P. Morgan upgraded Lexar Media ( LEXR) to overweight from neutral after the company's deal with Sony ( SNE), shrinking the risk of bankruptcy for the company. Lexar surged 18%, up $1.15 to $7.53.

Elsewhere, JDSU ( JDSU) was lower by 3.2% after Roth Capital Partners downgraded the stock to neutral from buy, citing valuation.

The move comes a week after shareholders approved a reverse stock split. Separately, the company reported in a regulatory filing that it has a material weakness in its internal financial reporting controls. Shares lost 7 cents to $2.15.

Overseas markets were mixed, with London's FTSE 100 up 0.4% at 5501 and Germany's Xetra DAX adding 0.8% to 5082. In Asia, Japan's Nikkei fell 0.4% overnight to 13,525, while Hong Kong's Hang Seng was down 0.2% at 15,394.

More from Markets

Stocks Trim Losses in Final Minutes of Trading

Stocks Trim Losses in Final Minutes of Trading

Overstock Needs a Catalyst, Says Analyst

Overstock Needs a Catalyst, Says Analyst

American Express Shares Climb After Winning Supreme Court Case

American Express Shares Climb After Winning Supreme Court Case

3 Must Reads on the Market From TheStreet's Top Columnists

3 Must Reads on the Market From TheStreet's Top Columnists

Watch: Here's What Wall Street Is Tracking Monday as Trump Sends Stocks Lower

Watch: Here's What Wall Street Is Tracking Monday as Trump Sends Stocks Lower