updated 7/27/2004 8:33:17 AM ET 2004-07-27T12:33:17

Increasingly despondent investors sent stocks falling again Monday, as poor earnings outlooks and concerns about the economy eclipsed a pair of multibillion-dollar mergers. The Nasdaq composite index and Standard & Poor’s 500-stock index both closed at new lows for the year.

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Health care and pharmaceutical stocks rose as Mylan Laboratories Inc. made a $4 billion all-stock offer for King Pharmaceuticals Inc. Financial stocks also moved slightly higher as Spanish bank Banco Santander offered $15.3 billion for British mortgage lender Abbey National.

Trading on Wall Street remained lackluster, however, as investors awaited earnings reports later in the week from Aetna Inc., Boeing Co., Exxon Mobil Corp., Time Warner Inc. and Verizon Communications Inc.

Even more importantly, investors were waiting for more economic data to help determine whether the economy’s slowdown in June was transitory — or a sign of things to come.

“This is much more than the usual summer doldrums. There’s a message coming from the market, here,” said Hugh Johnson, chief investment officer at First Albany Corp. “If I were to simplify that message, it’s that the economy and earnings in the third and fourth quarter won’t be as strong as we expected.”

At the close, the Dow Jones industrial average was off 0.30 point, or nearly flat at 9,961.92, after having been moderately lower for much of the session. It was the Dow’s lowest close since May 20.

The broader Standard & Poor’s 500-stock index was down 2.13 points, or 0.2 percent, at 1,084.07, its lowest close since Dec. 17, while the tech-loaded Nasdaq composite index shed 10.07 points, or 0.5 percent, to close at 1,839.02 — its lowest point since Oct. 2.

With more than half the companies that make up the S&P 500 reporting earnings so far, more than two-thirds have exceeded estimates for second-quarter earnings. But the strong profits have been overshadowed by lower outlooks for the rest of the year from a number of major corporations.

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Even new strength in the housing sector was not enough to rouse buyers Monday. Existing home sales rose 2.1 percent to a new record in June, according to the National Association of Realtors, as home buyers rushed to lock in low interest rates.

“We certainly haven’t had that one blockbuster story to focus on. In the absence of that, the sideways trend we’ve been expecting has become a downtrend,” said Brian Pears, head equity trader at Victory Capital Management. “We’ve lacked an obvious catalyst for the second half. I think traders have been waiting for that one big selloff to get back in the market, but we’ve been drifting slowly downward, and I don’t think we’ll get that big selloff.”

Earnings at Mylan Labs were flat compared to a year ago, and the company missed estimates by 2 cents per share. That, combined with the offer for King, sent the stock down $3.00, or 16 percent, at $15.51. King surged $2.52, or 24 percent, to $12.89.

Citigroup fell 50 cents to $43.81 after the financial giant was mentioned as a potential alternative buyer for Abbey National. Other financial stocks were mixed, with J.P. Morgan Chase & Co. down 6 cents at $36.47 and Bank of America Corp. up 41 cents at $85.27.

The market had a mixed reaction to federal approval of a new cholesterol drug from Merck & Co. and Schering-Plough, due out in a matter of weeks after final approval from the Food and Drug Administration. Merck fell 16 cents to $45.00, while Schering-Plough gained 81 cents to $19.56.

BellSouth Corp. was up 91 cents at $26.81 after it announced a 5 percent rise in profits on flat revenues for the second quarter, beating Wall Street expectations by a penny.

International Paper Co. rose 34 cents to $42.65 after exceeding estimates by 3 cents per share. The company said higher costs for materials and transportation could affect future earnings, however.

Declining issues outnumbered advancers by nearly 5 to 2 on the New York Stock Exchange, where volume was moderate. Overseas, Japan’s Nikkei stock average fell 0.3 percent. In Europe, France’s CAC-40 slid 1 percent for the session, Britain’s FTSE 100 closed down 0.9 percent and Germany’s DAX index fell 1.2 percent.

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