Stocks fell moderately Monday as news of job cuts at drug giant Merck and a mixed holiday-sales snapshot prompted Wall Street to take a...

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NEW YORK — Stocks fell moderately Monday as news of job cuts at drug giant Merck and a mixed holiday-sales snapshot prompted Wall Street to take a breather from its recent five-week rally.

At the close of trading, the Dow Jones industrial average lost 40.90 to 10,890.72.

Microsoft, one of the 30 Dow stocks, slipped 1 cent to close at $27.75 a share. Boeing, also a Dow stock, fell 43 cents to $68.63.

Broader stock indicators retreated from their highest levels since mid-2001. The S&P 500 slid 10.79 to 1,257.46, and the Nasdaq fell 23.64 to 2,239.37.

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The market was coming off seven consecutive trading days of gains amid a year-end rally that vaulted the Standard & Poor’s 500 and Nasdaq composite indexes to four-year highs, fed by an improving economic landscape and mounting eagerness for strong sales in December.

But while some of the nation’s retailers reported a solid opening to the holiday shopping season, other merchants said shopper traffic tailed off once Friday’s bargains passed. Retail stocks fell despite Wal-Mart and J.C. Penney posting better-than-expected numbers.

Sharply lower oil prices did little to energize the market either, although a recent slide in crude futures has helped temper fears about higher energy costs eating into consumer spending this year.

Despite a clouded holiday retail-sales outlook, Steve Neimeth, senior vice president and portfolio manager for AIG SunAmerica, said the broader picture remains positive.

“Bottom line, the consumer is extremely healthy and sentiment is good,” Neimeth said. “I believe they will be spending heavily this year, and that December retail sales will beat expectations.”

Forecasts for mild weather in the Northeast took crude futures lower. A barrel of light crude dropped $1.35 to settle at $57.36 on the New York Mercantile Exchange.

This week brings a spate of key economic reports on gross domestic product growth, spending and employment.

Closely watched data that could move the market are scheduled for release each day and also could be the reason for Monday’s selloff, said Rick Pendergraft, an equity trader with Schaeffer’s Investment Research.

“Today might be a breather,” Pendergraft said. “People might also be wanting to take gains off the table ahead of these [economic] reports, not knowing how they’re going to turn out.”

Neimeth noted that investors may have found some weakness from declining sales of existing homes amid growing indications that the real-estate market is starting to cool off. The National Association of Realtors said existing home sales sank 2.7 percent to 7.09 million in October, below economists’ forecast for 7.29 million.

“It appears we may have finally reached a peak in the housing market,” Neimeth said. “Going forward, falling home prices could be in store.”

Traders pulled out of the retail sector as they tried to make sense of conflicting sales reports, though many are waiting for storeowners to release November results later this week. Wal-Mart lost 49 cents to $50 and J.C. Penney fell $1.22 to $52.88, while Target Corp. also sank 51 cents to $54.72.

Elsewhere, discount retailer Kohl’s declined $2.18 to $47.02, and Federated Department Stores dropped $2.49 to $64.58.

Merck plans to slash 11 percent of its work force and shut five manufacturing plants by 2008 as the company struggles with legal woes over its Vioxx painkiller and faces losing patent protection for another top-selling drug, cholesterol reducer Zocor. The news sent shares sliding $1.42 to $29.56.