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Stocks drop late in session on Syria concerns

Stocks reversed their earlier gains in the last hour of trading to close sharply down on Monday, with the Dow ending below the psychologically-important 15,000 level, as traders cited jitters over Syria.

Earlier, the markets were logging moderate gains, but they fell after U.S. Secretary of State John Kerry said all nations must stand up for accountability on the use of chemical weapons in Syria.

Adding to woes, the Treasury will reach its debt limit in mid-October, Dow Jones reported, citing sources familiar with the matter.

The Dow Jones Industrial Average finished 64 points in the red at 14,946, dragged by Proctor & Gamble and Microsoft. The index is on track for its biggest monthly loss since last May.

The S&P 500 and the Nasdaq also closed in negative territory. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped above 14.

Most key S&P sectors ended lower, dragged by telecoms and consumer staples, while health care eked out a gain.

"The turnaround (in stocks) is probably a reaction to the Secretary of State Kerry's comments. We are seeing signs of escalation here and geopolitical concerns are trumping," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Stocks traded modestly higher for most of the session as a weaker-than-expected durable goods report eased worries that the Federal Reserve will scale back its stimulus efforts.

Orders for long-lasting manufactured goods such as refrigerators and washing machines slumped in July, according to the Commerce Department, recording their biggest drop in nearly a year and snapping three straight months of gains.

(Read more: Ugly durables toss monkey wrench into taper debate)

"With durable goods orders plunging in July, the Fed has an additional reason—in addition to the rise in mortgage rates and the mixed housing data—that QE tapering should start small," according to a note from Strategas Research Partners.

"We continue to believe that the smaller the Fed wants to move, the sooner they should start, since the unemployment rate has continued its decline toward 7 percent. To be sure, there is an important payroll employment report coming next week, and today's weakness in durables orders makes that employment release even more important."

Treasury prices rose following the disappointing report. The yield on 10-year benchmark Treasury notes fell to 2.795 percent.

Meanwhile, manufacturing activity in the Texas areas continued to expand at a modest pace in August, according to a report by the Federal Reserve bank of Dallas.

(Read more: Here's what economists say is US's biggest worry)

Deal news took the early focus, with a big merger in the pharmaceutical industry.

Amgen soared to lead the S&P 500 gainers after the bio-pharmaceutical giant said it will acquire cancer drug maker Onyx Pharmaceuticals in a deal worth about $10.4 billion, marking the fifth-largest biotech acquisition ever. 

Meanwhile, BATS Global Markets and Direct Edge said they would merge in a deal that would create the second-largest U.S. stock exchange. Financial terms of the transaction were not immediately announced. the deal is expected to close in the first half of 2014.

In Asia, China stocks outperformed other equity markets on economic optimism following economic data out of the U.S. on Friday. The Shanghai Composite rose to a one-week high, South Korea's Kospi hit a three-day high, Australian equities were steady around 5,137 points but Japan's Nikkei bucked the trend to dip 0.2 percent.

(Read more: German CEOs warn over political stability ahead of elections)

Meanwhile in Europe, shares were mixed in morning trade, while Britain's FTSE 100 was closed for a bank holiday. Dutch telecoms group KPN announced improved terms for the sale of its German business to Spanish telecom firm Telefonica, and shares in both companies rose on the news.

(Reuters contributed to this report)