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LONDON (MarketWatch) -- U.S. stock futures edged lower on Monday, with Pfizer shares set to fall sharply after the drugmaker said it has halted the development of a key cholesterol drug and bank stocks in focus after Bank of New York Company said it will buy Mellon Financial Corp. to become the world's largest custodian of financial assets.

S&P 500 futures fell 1.30 points at 1,399.10 and Nasdaq 100 futures dipped 2.00 points at 1,780.00. Dow industrial dipped 14 points at 12,210.

The dollar on Monday strengthened against its major rivals, gaining around 0.2% against the yen to trade at 115.48.

Crude-oil futures edged lower, losing 54 cents in electronic trading to $62.89 a barrel.

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"Volatility is...going to be one of the hallmarks," of the coming trading sessions, said John Caldwell, investment strategist at McDonald Financial Group.

The market's tone has been set by this week's reports of the first contraction in the manufacturing sector since April 2003.

The Institute for Supply Management's November manufacturing index and the Chicago Purchasing Managers Index took on greater-than-usual importance because they raise concerns about the whether the economy is headed for a so-called hard or soft landing, said Caldwell.

The monthly employment report will be released by the Labor Department on Friday and garner attention. But Steve Goldman, chief market strategist at Weeden & Co., said Tuesday's factory orders number could be a more key driver of stocks.

If manufacturing continues to weaken, "systematically, unemployment could shift with that later on," said Goldman.

Economists are expecting 119,000 jobs to have been created in November, up from 92,000 in October, according to a survey of conducted by MarketWatch. The jobless rate is expected to edge up to 4.5% from 4.4% in October, which was the lowest level since May 2001.

Revisions to third-quarter productivity are due Tuesday from the Labor Department. Caldwell expects to see another period of slow growth and that could heighten the central bank's worries about inflationary pressures.

Federal Reserve Chairman Ben Bernanke said in a speech this week that inflation has been "better behaved of late" and that the economy is on track to expand at a moderate pace over the next year without much of a slowdown.

But more investors are hedging their bets against Bernanke's projection. The odds that the Fed will cut rates early next year jumped after Friday's weak manufacturing report.

The fed funds futures market at the Chicago Board of Trade has now priced in a 28% chance of a rate cut to 5% from 5.25% in January and an 80% chance of a cut in March.

Mike Holland, manager of the Holland Balanced Fund, expects stocks to gain ground next week and through the end of the year. He said he's taking his cue from the many large multinational companies that have been describing their business bookings as "robust" through year's end.

 

Caldwell said the decline in stocks this week could have been much worse considering that oil prices simultaneously surged 7%. However, he's still advising clients to move cautiously.

"We're not adverse to taking money off the table in the near term...and using the market volatility to our advantage."

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