The Federal Reserve remained in focus on Monday with speculation over a June rate hike leading to choppy trading.
The S&P 500 was down 0.07%, the Dow Jones Industrial Average added 0.06%, and the Nasdaq gained 0.08%.
The U.S. economy is "on the verge" of warranting a rate increase next month, Boston Fed President Eric Rosengren said in an interview with the Financial Times over the weekend. Rosengren, a voting member of the Federal Open Market Committee, recently said steady hikes should resume following initial liftoff in December.
St. Louis President James Bullard, also a voting member of the FOMC, said economic trends back up the case for slow normalization of rates rather than no rate hikes.
"Labor markets are relatively tight. This may put upward pressure on inflation going forward," Bullard said in a speech in Beijing on Monday. "This is an important factor supporting the FOMC view on the expected path of the policy rate."
The central bank will likely accelerate the pace of rate hikes next year, San Francisco Fed President John Williams said on Monday. The non-voting member said he expects "two or maybe three rate increases" this year and potentially "three or four" over 2017.
Williams also noted that a decision in June will still rely heavily on incoming data. "It will depend on the data," he said. "We still get another month's data before the June meeting and we want to analyze that and come to our conclusion."
Wall Street received a wake-up call last week as the likelihood of a rate hike sooner rather than later was made clear. Volatility spiked last Wednesday after the release of minutes from the Fed's April meeting that outlined the viewpoints of monetary policy committee members.
"The more hawkish tone to the April FOMC minutes surprised market participants who had become complacent regarding the potential for a summer rate increase," Bill Northey, chief investment officer at the Private Client Group at U.S. Bank, told TheStreet.
A rate hike in June now has a 30% probability, according to CME Group, after starting the month with odds of less than 10%.
The U.S. manufacturing sector failed to improve in May as the Markit Flash PMI fell to 50.5 from 50.8 in April. The production component declined for the first time since September 2009. The sector has been under pressure from weaker global demand and a stronger U.S. dollar that deterred foreign buyers.
Crude oil fell on Monday as Iran stayed firm on increasing its oil exports, adding to a global supply glut. Iran's deputy oil minister, Rokneddin Javadi, said the country didn't intend to halt production and that crude exports would reach 2.2 million barrels per day by the middle of the summer, up from current levels of 2 million barrels. West Texas Intermediate closed at a one-week low, down 0.7% at $48.08 a barrel.
German pharmaceuticals and chemicals company Bayer (BAYRY) announced on Monday that it has offered to buy U.S.-based crops and seeds specialist Monsanto (MON) for $62 billion. The all-cash offer values Monsanto at $122 a share, a 37% premium to Monsanto's close on May 9, the day before Bayer made a written proposal to the company.
In other deals news, Tribune Publishing (TPUB) rejected Gannett's (GCI - Get Report) latest $864 million takeover proposal. Tribune, owner of the Los Angeles Times and Chicago Tribune, did agree to share confidential information with Gannett, a possible path to further negotiations.
Bank of America also gave a two-notch upgrade to Staples (SPLS) to buy with a $10 price target. The firm said the move was a valuation call as the stock has fallen 21% over the past two weeks following the dissolution of its planned merger with Office Depot (ODP - Get Report) .
Lending Club (LC - Get Report) spiked 9% after Singapore-based investment firm Shanda Group acquired an 11.7% stake in the peer-to-peer lender. Lending Club suffered a rough week after the Justice Department launched an investigation into a number of loans sold earlier this year.
CF Industries (CF - Get Report) climbed after the fertilizer distributor and Dutch rival OCI terminated their proposed $8 billion merger given the new U.S. tax regulations on inversion deals. CF Industries and OCI had planned to register their combined company in the U.K., significantly reducing their tax rate. CF industries will pay OCI a $150 million breakup fee.
Fiat Chrysler (FCAU - Get Report) fell more than 5% on reports it could be banned from selling cars in Germany if it is found to have ignored emissions rules. The German Federal Motor Transport Authority reportedly found that the automaker had tinkered with emissions equipment in some Fiat models.
Facebook (FB - Get Report) has purchased Two Big Ears, a developer of virtual-reality audio software, to supplement its Oculus division. Oculus will begin its first shipments of its Rift virtual-reality headset in less than two months. Terms of the deal were undisclosed.