Stocks ended a volatile session in negative territory as investors were rattled by concerns regarding leveraged mortgage securities held by two Bear Stearns hedge funds.

"We will see a splash near term as some of these funds need to unwind positions in paper that really isn't traded too much," said Jack Ablin, chief investment officer at Harris Private Bank. "There is going to be a couple of weeks of sloppy trading in that space."

The Dow Jones Industrial Average closed down 8 points after being up as much as 129 points earlier in the session. The S&P 500 fell below the 1500 mark with a modest loss of 0.3% while the Nasdaq Composite declined 0.4%.

Investors have been nervous regarding subprime mortgage problems at two Bear Stearns [  Loading...      (%)   ] hedge funds would spread. A spokesman for Bear Stearns was unavailable for comment.

Just three of the 10 economic sectors tracked by S&P ended higher with gains seen for the rate-sensitive utilities sector, along with telecoms and health care stocks. Materials stocks, energy and the financials led downside sector movers.

The yield on the 10-year Treasury note [US.10  5.089    0.013  (+0.26%)   ] fell, as Treasury prices rose.

"We still have the subprime issues within the hedge fund portfolios," said Richard Suttmeier, chief market strategist at RightSide.com. "There's a lot of things that could shake up the market as liquidity dries up."

Also adding to Monday's subprime concerns was a report which said Goldman Sachs subprime mortgage bonds issued last year are being downgraded by credit rating companies at the fastest rate of any issuer, according to Reuters.

"The fundamentals are still very good," said Michael Darda, chief economist at MKM Partners. "Despite all of these fears, corporate credit spreads actually are close to their narrrowest level for the entire year.  So that tells me that there's really no evidence of a contagion here, whatsover."

European Stocks Close Mixed

European stock markets pared losses to close mixed as investors continued to worry about the outlook for interest rates despite more merger and acquisition activity.

The London FTSE-100 [FTIND  6588.4    21.00  (+0.32%)   ] finished moderately higher, while the Paris CAC-40 [CAC40-FR  6002.85    -20.40  (-0.34%)   ] and the Frankfurt DAX [DAX-XE  7930.61    -19.02  (-0.24%)   ] fell moderately.

The Bank for International Settlements said Sunday that central banks around the world should raise interest rates further to curb inflation pressures. It added that the good economic environment meant that rates should start moving higher to normal levels.

Asian Stocks Lower

Asian stocks traded lower as many of the major benchmarks failed to shake-off Friday's dismal session in the U.S.

The Nikkei 225 [NIKKEI  18087.48  ---  UNCH  (0%)   ] fell into negative territoy, but electronic plays rallied on reports JVC is likely to merge with audio equipment maker Kenwood. Both stocks rose even though the two parties denied talk that any decisions have been made.

Nintendo shares defied the inital market downtrend on news that it outplayed rival Sony in terms of market value, becoming one of the top ten issues for the first time ever. Nintendo rose as much as 2%.

South Korea's KOSPI did its best to stay afloat, inching up 10 points to 1,781.90. Analysts say the rapid rise caused uneasiness in the market.

In Australia, the S&P/ASX200 fell nearly 1% to 6,337.9 in line with the early regional market decline.

Elsewhere in Asia, Hong Kong's Hang Seng Index was lower, as was the Straits Times Index.

The Shanghai Composite Index fell dematically by 3.7%. Meantime, the Taiwan Weighted Index jumped 1.1% as a weekend announcement by the front-runner of the island's next presidential election, Ma Ying-jeou, sparked hopes of improving economic outlook.