On the economic front, the pace of growth in manufacturing in New York state slowed more than expected to 3.05 in April from 9.24 in March, according to the New York Fed's "Empire State" index. Economists had expected a reading of 7.



And homebuilder sentiment slipped for the third consecutive month in April, declining to 42 from 44 in March, according to the NAHB/Wells Fargo Housing Market index. Economists had expected a reading of 45. A reading above 50 indicates that more builders view market conditions as favorable. Most homebulders were in the red, led by Meritage, Pulte and Toll Brothers.

"There will be a constant barrage of catalysts this week … and we may be setting the table for a correction that people are looking for," said Art Hogan, managing director at Lazard Capital Markets. "We've seen a two-week pattern of less-than-stellar economic data from the U.S., so we seem to be hitting a seasonal soft patch…we'll also be watching earnings and getting more information from a parade of Fed speakers."



Citigroup bucked the downward trend after the bank posted quarterly results that topped expectations thanks to improvements on loans and credit spreads.



The pace of earnings season begins to pick up this week with major companies including Goldman Sachs, Intel, Bank of America,Morgan Stanley, Microsoft, Google and GE scheduled to report results. (Track the Earnings Calendar Here)

(Read More: Tech Earnings: What to Expect from Yahoo and Intel)

On the M&A front, Sprint Nextel surged more than 13 percent to lead the S&P 500 gainers after Dish Network offered to acquire the telecom company for $25.5 billion in cash and stock. Meanwhile, Sprint's rivals AT&T and Verizon traded lower.

Also, Thermo Fisher Scientific is nearing a deal to buy genetic testing equipment maker Life Technologies for close to $13 billion, according to four people familiar with the matter, in what would be one of the year's biggest corporate takeovers. Shares of Life Technologies soared.

Google settled its two-year antitrust investigation by the European Commission by agreeing to legally binding changes to its search results.



And JPMorgan downgraded Saks from "overweight" to "neutral," citing downward pressure on luxury spending due to the higher income tax burden.