By William L. Watts, MarketWatch

NEW YORK (MarketWatch) -- U.S. stocks dropped on Monday after a choppy trading session, with the energy and financial sectors leading the S&P 500 lower, as Treasury yields hit fresh two-year highs.

The Dow Jones Industrial Average (DJI) fell 70.73 points, or 0.5%, to end at 15,010.74, with 23 of its 30 components ending in negative territory.

The S&P 500 (SPX) declined 9.77 points, or 0.6%, to 1,646.06.

This was the fourth consecutive session of declines for both the Dow industrials and the S&P 500, marking the longest losing streak since Dec. 28, 2012, when the market fell for five straight trading days.

More than 640 million shares traded on the New York Stock Exchange and composite volume topped 2.8 billion. The Nasdaq Composite (RIXF) fell 13.69 points, or 0.4%, to 3,589.09.

"It feels like interest rates have probably overshot to the upside," with the yield on the 10-year note likely headed toward the 3% level, said Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research in Austin, Texas. Read: 3 reasons to be bullish on stocks and 3 reasons to be bearish.

Treasury yields continued to push higher, exploring territory last seen in July 2011. The yield on the 10-year Treasury note (10_YEAR) rose seven basis points, or 0.07 percentage point, to 2.89%.

Rising yields can undercut stocks due to fears that higher borrowing costs will slow economic activity. Yields have been on the rise since this spring, when Federal Reserve Chairman Ben Bernanke indicated the Fed could begin scaling back its $85 billion-a-month bond-buying plan later this year.

While stocks recovered from a June pullback fueled by concerns over the Fed's plans, markets stumbled last week as Treasury yields continued to rise.

Stocks fell Friday, leaving the Dow with its biggest weekly percentage drop and point loss of 2013, while the S&P 500 saw its biggest weekly point loss.

Analysts are debating whether a decision by the Fed to begin scaling back its bond-buying program should be viewed as a negative factor for stocks.

"I happen to be in the camp that thinks good news is, in fact, good news and that investors are overreacting to the prospect of tapering," said Jerry Webman, chief economist at Oppenheimer Funds, in a note to clients.

In fact, market expectations that the Fed will begin to cut back its purchases may have grown so strong that failure to act soon could be a bigger negative for stocks, because it would raise questions about the underlying strength of the economy, he said.

Schwab's Frederick, however, argued that prospects for a data-inspired Fed tapering combined with a range of other potentially negative factors, including renewed budget strains and further fiscal tightening due to the sequester, set the stage for further stock weakness. He sees scope for a retest of the June lows. A failure to taper in September, while not likely, would probably spark a relief rally in equities, he said.

With no major economic data due on Monday, investors are looking ahead to the release Wednesday of the minutes of the latest meeting of Fed policy makers, as well as the Kansas City Federal Reserve's annual retreat in Jackson Hole, Wyo., at the end of the week.

Bernanke, however, won't be attending, likely undercutting its influence, and leaving investors to obsess all the more over yields.

Meanwhile, the minutes of the Federal Open Market Committee's July 30-31 meeting will be released at 2 p.m. Eastern on Wednesday. The summary will be scanned for information on how many policy makers were prepared to slow asset purchases, economists said.

It is a light week for economic data, with July existing-home sales due on Wednesday and new-home-sales figures set for release on Friday. Weekly jobless claims on Thursday could also sway markets after a larger-than-expected drop in first-time applications for benefits reported last week.

Intel gains

Shares of Intel Corp. (INTC) rose 1.7%, making it the biggest gainer on the Dow. The rise came after Piper Jaffray analyst Auguste Gus Richard raised the stock's rating to neutral from underweight, citing potential gains from the corporate market and the coming release of Windows 8.1.

Facebook Inc. (FB) shares rose 2% to $37.81 after Evercore Partners analyst Ken Sena raised his price target to $45 from $34.

Shares of Apple Inc. (AAPL) maintained upside momentum after the company posted its strongest weekly performance since October 2011 last week after Carl Icahn trumpeted the company's merits on Twitter. Apple shares rose 1.1% on Monday.

Dollar General Corp. (DG) rose 3.1%, turning in the strongest performance in the S&P 500. J.P. Morgan analysts raised the stock to overweight from neutral, citing a "sustainable mid-teens-plus [earnings per share] compounding-growth story unfolding." See: Monday's Movers.

J.P. Morgan Chase & Co. (JPM) fell 2.7%, making it the largest loser in the Dow. News reports said U.S. regulators are looking into the bank's hiring practices in China.

Cliffs Natural Resources Inc. (CLF) dropped nearly 5%, making it the biggest loser in the S&P 500. The decline comes after a nearly 4% drop on Friday.

In other markets, Asian stocks closed mostly lower, while European stocks traded with modest but broad-based losses.

Gold futures dropped $5.30, or 0.4%, to settle at $1,365.70 an ounce on the Comex division of the New York Mercantile Exchange.

Oil prices ended slightly lower, while the dollar traded mixed against other major currencies. The Indian rupee, meanwhile, made headlines as it sank to an all-time low versus the dollar as efforts by the Indian government to stem panic selling failed to do the trick.

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