Stocks closed lower, although considerably off the lows of the day, as investors assessed how the massive quake in Japan was likely to affect stocks and the global economy.
The Dow Jones Industrial Average fell 51.24 points, or 0.43 percent, to 11,993.16, falling below the psychologically important 12,000 benchmark, after ending the previous week lower. The blue-chip index fell as much as 147 points during the session.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, gained more than 5 percent to close above 21.
Most key S&P 500 sectors declined, led by utilities and consumer discretionary, while energy rose slightly.
It's difficult for investors to be upbeat in the immediacy of the event, said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "I think that's more of what we are dealing with right here," Paulsen said.
Investors are also wrestling with the notion of how an economic hit to Japan, combined with slowing growth out of China, will affect the global economy, he said.
But, Paulsen added, "there are investors that are looking at Japan eliminating in one trade day its entire advance since last fall, and buying." And if they haven't, he said, that may happen later in the week.
Nasdaq, CNBC has learned, could make a hostile offer for NYSE/Euronext as early as Tuesday. It's unclear what role if any Intercontinental Exchange will play.
Oil prices initially fell on expectations economic growth will slow after the earthquake, but pared losses following news that Gulf Cooperation Council sent troops into Bahrain to quell protests. London Brent crude rose to near $114 a barrel, while U.S. light sweet crude traded above $100 a barrel. (Click here for more on the crisis in the Middle East and North Africa.)
The Bank of Japan, under pressure to calm the markets, said it has supplied an additional 41 billion yen Monday to financial institutionsoperating in areas hit by the earthquake and Tsunami. Nonetheless, trading in the yen remained choppy and was expected to stay that way.
Japan's strongest earthquake on record shut refineries and industrial plants in the world's third-largest oil consumer. U.S. refiners, meanwhile, gained, including Tesoro [TSO 25.98 1.47 (+6%) ], Western Refining [WNR 15.99 0.69 (+4.51%) ] and Frontier Oil. (Click here for more news on the disaster in Japan).
GE, which has nuclear ventures with Hitachi, declined more than 2 percent, although Citigroup wrote in a note that the decline was "excessive," given GE's limited exposure to financial losses due to the devastating problems with Japan's nuclear reactors, and given the fact the nuclear power business represents just 3 percent of GE sales. S&P Equity, meanwhile, reiterated its "buy" rating on the stock.
"We believe the share price reaction reflects headline risks rather than an accurate assessment of GE's financial exposure," Citi wrote, adding that investors could also be taking profits as GE shares had risen 11 percent before today's move.
Expectations that proposed or planned nuclear power plans may not go forward hurt utilities, however. Entergy, which currently generates nuclear power, sank more than 4 percent, after Bank of America Merrill Lynch downgraded the utility to "underperform" from "neutral," and cut its price target to $74 a share from $78, because of the uncertainty of nuclear power plant approvals that are "critical to long-term earnings."
The brokerage also downgraded Scana to "underperform" from "neutral," saying it has a "meaningful amount of its earnings growth tied to nuclear" through the utility's 55 percent share of two new units that were to contribute "almost all its earnings growth over the next five years."
The Southern Company may also experience delays in developing nuclear power as a result of the nuclear disaster in Japan, according to Citigroup.
Shares of Toyota, which said it would suspend production at all its car plants until at least March 16, dropped more than 4 percent. Rivals Honda and Nissan also fell. (Read more: Prius Production Delays Could Curb Toyota Rebound.)
Financials including Citigroup and JPMorgan slipped to lead markets lower in part over investor fears that Japan's quake will affect earnings of banks with global operations, said Dave Rovelli, Canaccord Genuity's managing director of equity trading.
The Stoxx 600 European Insurance Share Index fell about 1.5 percent. The reinsurers fared the worst, falling as much as 3.8 percent. Construction and refinery shares rose in emerging markets as investors expected a boost from large-scale reconstruction efforts.
Boeing shares slipped after the company said if the firm's Japanese suppliers are disrupted by more than several weeks, the Dow component could face new production problems for the already long-delayed 787 Dreamliner.
And luxury goods makers heavily dependent on sales in Japan were also hit, including Coach and Tiffany, which both sank more than 5 percent.
Meanwhile, on the M&A front, Berkshire Hathaway agreed to buy Lubrizol for $135 a share, for about $9 billion in cash, the companies said. Lubrizol shares soared more than 25 percent. (Read more: Buffet Hits Mark With Latest Acquisition).
Semiconductor stocks were mixed as investors struggled to understand how the quake would affect the sector, according to Scott Redler, chief strategic officer at T3Live.com. "This is a sector to watch going forward for the next few weeks," Redler said in a note to clients.
Pfizer advanced after reports the drug company may shed assets, according to Sanford C. Bernstein.
Family Dollar rose after news Nelson Peltz of Trian Fund Management reiterated its offer for the company, and said in an SEC filing that it was upset with the board of the discount retailer for adopting a "poison pill" defense against a takeover.
Volume on the consolidated tape of the New York Stock Exchange was 4.1 billion shares, while 964 million changed hands on the NYSE floor.
There is no major economic news on the calendar today, but the Federal Reserve's policy setting committee was expected to hold a one-day meeting on Tuesday. While the Fed is not expected to raise rates, the meeting will refocus traders on the central bank's bond buying program, set to end in June.
Producer prices and consumer inflation data are expected Wednesday and Thursday.
European shares fell to the lowest close since December in the wake of the Japan quote as investors feared the effects on growth and demand.