updated 2/8/2005 8:56:42 AM ET 2005-02-08T13:56:42

Stocks dipped lower Monday despite a sharp drop in oil prices and new strength in the dollar as investors worried about the market’s ability to hold its gains after last week’s rally.

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Investors hoped the new week would extend an advance forged on mostly positive fourth-quarter earnings reports and reassuring economic data. Instead, Monday’s light trading meant that many players kept to the sidelines, unsure if the rally had staying power.

“The question now is whether last week was just a technical bounce, or if there’s something here that we can trade on to the upside,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati. “So today, you have people waiting to see whether these gains stick.”

The Dow Jones industrial average fell 0.37, or 0.01 percent, to 10,715.76 after a 123-point gain Friday.

Broader stock indicators lost ground. The Standard & Poor’s 500 index was down 1.31, or 0.11 percent, at 1,201.72, and the Nasdaq composite index lost 4.63, or 0.22 percent, to 2,082.03.

There was no catalyst to keep buyers in the market Monday. President Bush released his $2.57 trillion budget proposal, slashed spending across a wide swath of government programs, but it also included a record deficit.

“It’s a positive sign, certainly, and you’re seeing the dollar rise because of that,” said Peter Cardillo, chief strategist and senior vice president at S.W. Bach & Co. of the budget. “The question is, is it going to be torn apart by Congress? That’s a big battle on the horizon.”

Even a new three-week high for the dollar and a sharp drop in crude oil futures failed to move stocks. A barrel of light crude closed at $45.28, down $1.20, on the New York Mercantile Exchange.

Last week’s substantial move higher was broad-based, with only technologies shares lagging somewhat due to concerns about weak corporate capital spending. Investors were cheered by reports that pointed to economic growth healthy enough to sustain stock prices but slow enough to avoid inflation issues.

In corporate news, The Wall Street Journal reported that an external panel monitoring the safety of Merck & Co.’s Vioxx arthritis drug had early data showing health issues — increasing concerns that the expected wave of litigation against the company would be successful. The drug was pulled from the market in September after it was found to carry an increased risk of heart attack and stroke. Merck nonetheless climbed 8 cents to $28.43.

Wellpoint Inc. slid $4.04 to $120.85 after it reported a 12 percent drop in profits, due in part to last year’s merger with Anthem Inc. The health insurer’s profits were a penny per share better than Wall Street expected.

Health benefits provider Humana Inc. saw its profits drop 29 percent due to a shift in accounting for a new contract. The company nonetheless beat analysts’ forecasts by 2 cents per share. Humana dropped 50 cents to $34.15.

Toy manufacturer Hasbro Inc. lost 40 cents to $20 after missing Wall Street profit expectations by 5 cents per share. The company blamed weak U.S. toy sales for a lackluster quarter.

Aircraft parts manufacturer Goodrich Corp. said strong sales to Europe’s Airbus consortium and to Boeing Co. led to a sharp rise in profits for the quarter. The company beat expectations by 17 cents per share before one-time charges. Goodrich was up 93 cents at $35.43.

Declining issues barely outnumbered advancers on the New York Stock Exchange, where volume was light.

The Russell 2000 index of smaller companies was down 0.83, or 0.13 percent, at 636.61.

Overseas, Japan’s Nikkei stock average surged 1.23 percent. In Europe, Britain’s FTSE 100 closed up 0.78 percent, France’s CAC-40 gained 0.6 percent for the session, and Germany’s DAX index rose 0.62 percent.

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