By Corrie Driebusch 
 

U.S. stocks fell Monday, dragged down by steepening declines in the price of oil.

Monday's selloff, which accelerated as the day went on, was sparked by ominous signs on the demand side that suggest the global economy may not ramp up enough to absorb all the oil in production. Over the past year, oil prices have tumbled more than 50%, and major stock indexes have often followed the commodity lower. On Monday, crude-oil futures dropped 4.1% to $45.17 a barrel.

The Dow Jones Industrial Average ended down 91.66 points, or 0.5%, to 17598.20. The S&P 500 declined 5.8 points, or 0.3%, to 2098.40 and the Nasdaq Composite shed 12.90 points, or 0.3%, to 5115.38.

Energy companies in the S&P 500 were the biggest decliners in the index, falling 2%. Major oil companies Chevron Corp. and Exxon Mobil Corp., which led declines in the Dow industrials on Friday, continued to drag the market lower, falling 3.3% and 1.5%, respectively.

"It's the big crude and oil and commodity-based complex that's dragging the market lower," said Bill Nichols, head of U.S. equities at Cantor Fitzgerald LP.

Part of the reason for the decline was data showing a gauge of Chinese factory-floor activity slumped to a two-year low. Adding to concerns, in the U.S. the Institute for Supply Management's manufacturing purchasing managers index declined.

As energy stocks fell, more defensive stocks, or stocks such as utilities and real-estate investment trusts that pay dividends and have bond-like characteristics, traded higher. Utilities companies were the top performers in the S&P 500, rising 0.6%, and the MSCI U.S. REIT Index, a benchmark for real-estate stocks, climbed 0.5%.

Still, Mr. Nichols said it is notable that the stock market as a whole is holding up pretty well, with U.S. stocks remaining near all-time highs. As of Monday's close the S&P 500 is off 1.5% from its record close hit on May 21.

On Monday, investors digested a slew of data released related to the U.S. economy. The data was mixed. On the one hand, consumer spending rose 0.2% in June from a month earlier, in line with expectations, the Commerce Department said, and consumer prices rose slightly in June, according to the Federal Reserve's preferred inflation gauge. But the increase in consumer spending was the smallest since February, a sign that weak wage growth may be weighing on consumers.

Investors are waiting for a sustained pickup in consumer spending, which could spur earnings and stock prices for a wide swath of companies. The steep decline in oil prices over the past year should act as a driver for spending, many investors say, as consumers direct the money they have saved on gas elsewhere.

"When it comes to just broad-based spending, they're really watching how they're spending their dollars," said Paul Buongiorno, chief investment strategist at Tiedemann Wealth Management.

"If you see strong spending growth ... that's someone else's revenue. That should translate into strong revenue and earnings growth of broad-based corporate America going forward," he added.

Though Monday's data matters, Friday's jobs report is seen by many investors as the next big catalyst for U.S. stocks, as it is viewed to be a strong determinant for the Fed's timing on raising short-term interest rates.

"Friday's numbers will tell us what direction we're going to take in the market in the next three weeks or so," said Kent Engelke, chief economic strategist at Capitol Securities Management, adding that wage inflation is the gauge he is most eager to see.

"It's going to be very tantamount to how aggressive the Fed is actually going to be," he said.

In Europe, the lingering concern about China's economy dragged down mining shares, but most other indexes climbed. The Stoxx Europe 600 rose 0.8%, boosted by some upbeat corporate earnings and data showing eurozone factory activity in July grew slightly more rapidly than first estimated.

Germany's DAX gained 1.2% and France's CAC 40 added 0.7%. But Greece's Athex Composite index, which had been closed since June 29 as the country's debt crisis intensified, plunged 16%.

In other markets, gold prices lost 0.5% to $1089.40 an ounce. Treasury prices rose slightly, pushing the 10-year yield down to 2.150% from 2.207% on Friday.

In corporate news, shares of auto makers climbed higher on strong July sales. Ford posted its best U.S. sales performance for the month since 2006, and Fiat Chrysler Automobiles NV said its U.S. auto sales rose 6.2% on the month on continued strength in its Jeep and Chrysler brands. Ford's stock added 0.7% while Fiat Chrysler rose 2.2%.

Tyson Foods Inc.'s stock fell 9.9% after the food company and largest U.S. meatpacker by sales missed expectations and cut its full-year outlook because of weak beef sales.

--Saumya Vaishampayan and Timothy Puko contributed to this article.

Write to Corrie Driebusch at corrie.driebusch@wsj.com