Wall Street: After the rally, a retreat

Following a big advance last week, investors take a step back on weakness in the financial sector and worries about the economy. Microsoft's move for Yahoo is also in focus.

NEW YORK (CNNMoney.com) -- Stocks slumped Monday, following last week's big rally, as investors mulled analyst downgrades of the financial sector and the continued threat of a recession.

The Dow Jones industrial average (INDU) gave back around 0.9%, the broader Standard & Poor's 500 (SPX) index lost 1.1% and the Nasdaq composite (COMP) fell 1.3%.

Treasury prices slumped, raising the corresponding yields. The dollar was mixed versus other major currencies.

Stocks rallied at the end of last week, after a miserable January, as investors welcomed Microsoft's bid for Yahoo and more talk of a bailout for the troubled bond insurers.

Last week the Dow gained 4.4% and the S&P 500 jumped 4.9%. The Nasdaq advanced 3.8%.

After such a big run, stocks were vulnerable Monday. Investors are trying to figure out if the market has put in a 'bottom' after the recent selloff or if last week's advance was just a temporary respite from all the selling.

"We saw a pretty decisive move upward on good volume, but the financial condition of the economy is still perilous," said Robert Philips, president and chief investment officer at Walnut Asset Management.

He said that the outlook for stocks over the next few months is going to depend on whether the market has actually bottomed out and also whether the bond insurers get some relief. The latest leg of the credit crisis has surrounded the solvency of insurers MBIA (MBI) and Ambac Financial (ABK).

In economic news, the December factory orders index rose more than expected. Orders rose 2.3%, the government reported, topping forecasts for a rise of 2%. Orders rose 1.7% in November.

However, the report did little to alleviate concerns about the economic slowdown, following Friday's surprisingly weak Jan. jobs report.

After the close, News Corp. (NWS, Fortune 500) reported higher quarterly earnings that met estimates.

Tuesday's lone economic report is the ISM's January reading on the services sector of the economy.