The Dow Jones Industrial Average dropped 39.10 points (0.29 percent) to close at at 13,403.42 and the tech-heavy Nasdaq shed 20.52 points (0.79 percent) to 2,581.66. The broad-market Standard & Poor's 500 index declined 7.60 points (0.51 percent) to 1,476.65.
The market action came after gains of better than two percent for the broad market last week, with many investors banking on a rate cut at Tuesday's Federal Open Market Committee (FOMC) meeting to ease stress in the housing and credit markets.
Analysts are sharply divided on the Fed's course. Many say the Fed needs to cut its base rate of 5.25 percent by 25 or 50 basis points, but others say a reduction would fuel inflation and bring back easy money conditions that have led to the real estate boom-and-bust cycle.
"Expectations for a Fed bailout ar