Bonds rose, as did gold futures. Oil futures fell while the dollar eased.

On Monday, the Dow Jones industrial average finished lower by 180.51 points, or 1.55%, at 11,479.39. The broader S&P 500 fell 19.60 points, or 1.51%, to finish at 1,278.60. The tech-heavy Nasdaq composite index dropped 35.54 points, or 1.45%, to 2,416.98.

On the New York Stock Exchange, 22 stocks declined in price for every 9 that advanced. The ratio on the Nasdaq was 19-9 negative. Trading was slow, according to S&P MarketScope, with signs of some position unwinding after Friday's options expiry.

Financial issues declined amid worries about the fate of mortgage financiers Fannie Mae (FNM) and Freddie Mac (FRE). Shares of both government-sponsored enterprises slid after Barron's reported the U.S. Treasury is increasingly likely to recapitalize the two companies, a move that would potentially dilute the value of stock holdings. The Treasury responded by saying it has no plans to backstop either Fannie or Freddie.

Another troubled corner of the financial sector received some better news Monday. Bond insurers MBIA (MBI) and Ambac Financial (ABK) rose after S&P Ratings Services affirmed its ratings on 619 classes of U.S. asset-backed securities that benefit from bond insurance issued by the two companies, and removed them from CreditWatch with negative implications. Also, S&P Ratings affirmed its AA ratings on 13 U.S. collateralized debt obligation tranches insured by MBI and removed them from CreditWatch negative.

The August National Association of Homebuilders' [NAHB] builder sentiment index was unchanged at a record low of 16. But the measure of current single-family home sales improved to 16 from 15 in July. Projections for sales six months from now rose to 25 from 23. By region, housing market conditions improved in the Northeast and Midwest but worsened in the West. Overall, though, builders are delaying projects as sales drop, foreclosures throw more houses on the market and prices tumble.

September West Texas Intermediate crude oil futures were off 72 cents to $113.05 per barrel amid persistent concerns about petroleum demand. Prices also faltered amid signs Tropical Storm Fay, which is approaching Florida, will hit east of the heaviest concentration of Gulf of Mexico oil platforms and pipelines.

Though commodity prices have fallen in the past month, inflation worries remain. "Although we think the term 'stagflation' greatly exaggerates the pain in the US economy -- at least relative to the 1970s, when it was initially coined -- it certainly describes the feel of the past week's economic data," said Jan Hatzius of Goldman Sachs. "Inflation surprised on the upside, while sentiment remained poor, credit conditions tightened, and domestic economic activity flagged. The only bright spot in the economy is the massive improvement in trade with the rest of the world."

Among stocks in the news Monday, Lowe's Companies (LOW) posted earnings of 64 cents, vs. 67 cents a year ago, as same-store sales fell 5.3%. The earnings figure beat Wall Street expectations by 8 cents. Next quarter, Lowe's expects same-store sales to fall 5% to 7% and total sales to grow 1% to 2%. About 120 stores are expected to be opened next year.

BHP Billiton (BBL), the world's largest mining firm, reported a 14.7% rise in profits. The company raised its annual dividend from 27 cents to 41 cents per share.

The Hershey Company (HSY) expects 2008 earnings on the lower end of previous guidance. Sales are expected to grow 3% to 4% this year, and 2% to 3% next year, as the company says it will raise prices. A Citigroup analyst downgraded the stock from buy to hold.

UnionBanCal Corp. (UB) agreed to be acquired by Mitsubishi UFJ Financial for $73.50 per share, valuing UnionBanCal at about $10.1 billion.

Trina Solar Ltd. (TSL) posted earnings of 68 cents per share, vs. 32 cents a year ago, as revenue rose sharply. The firm raised its 2008 revenue estimate.

Major European stock finished modestly lower Monday. In London, the FTSE 100 index was off 0.08% to 5,450.20. In Paris, the CAC 40 index fell 0.11% to 4,448.84. Germany's DAX index shed 0.2% to 6,432.88.

Major Asian indexes finished mixed Monday. Japan's Nikkei 225 index added 1.12% to 13,165.45. In Hong Kong, the Hang Seng index dropped 1.09% to 20,930.67.

Treasury market

Bonds headed higher Monday in a flight to safety from a stock market skid triggered by a slide in shares of Fannie Mae and Freddie Mac. In afternoon trading, the 10-year Treasury note was higher at 101-19/32 for a yield of 3.812%, while the 30-year bond rose to 101-03/32 for a yield of 4.436%.