Stocks close lower as technology slides

US technology stocks were the biggest losers as the Nasdaq lost 1.4 percent. The Dow stock index fell nearly 80 points and lost 0.7 percent.

By Abby Schultz, Special to CNBC.com

Stocks closed down, although off the lows of the day, as tech stocks dragged down the market amid high oil prices and continued turmoil in the Middle East.

The Dow Jones Industrial Average fell 79.85 points, or 0.66 percent, to close at 12,090.03, during a volatile session. The Dow had risen as much as 70 points early in the day, and fallen more than 128 by mid-afternoon.

Among Dow components, Alcoa, Intel, and Hewlett-Packard slid, while McDonald's and 3M gained.

The S&P 500 slumped 11.02 points, or 0.83 percent, to close at 1,310.13, while the Nasdaq Composite fell 39.04 points, or 1.4 percent, to close at 2,745.63. The The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 20.

Most key S&P 500 sectors fell, led by materials, technology and health care.

Oil prices set the tone for the market again.Prices initially rose to new 2-½-year highs on concerns that civil war was brewing in Libya, then eased amid a report, citing unnamed sources, that a pan-Arab newspaper that Muammar Gaddafi was making efforts to secure his departure from the country. U.S. officials, however, told NBC news the report can't be confirmed and is "unlikely" considering the situation on the ground.

London Brent crude fell 0.80 percent to settle at $115.04, while U.S. light, sweet crude settled at $105.44 a barrel after nearly reaching $107 earlier in the session. Gold, meanwhile, rose to $1,434 an ounce on Middle East concerns.

"All focus is on the Middle East and crude, and how that will impact the economy," said Daniel McMahon, director of equity trading at Raymond James. Every $10 hike in the price of a barrel of oil takes 25 to 50 basis points off gross domestic product on an annualized basis, McMahon said. The question for traders is, "will that snuff out the modest economic recovery we’ve all been enjoying."

Stocks should remain "range bound," until there is more clarity over the direction of oil prices, McMahon added.

Natural gas stocks were among the best performers among the energy stocks.Piedmont Natural Gas, New Jersey Resource, and Vectren were the best performers.

Tech stocks led the market lower on Monday, triggered by semiconductor stocks that were hit hard after Wells Fargo downgraded the sector to "market weight" from "overweight." The brokerage doesn't dislike the sector, but sees many of the stocks as overvalued.

An exception was Intel, which Wells Fargo named a "top pick," but still sank on Monday. Others given an "outperform" rating also fell: Qualcomm, LinearTechnology, Analog Devices, Xilinx and Altera.The iShares Semiconductor ETF index fell nearly 3 percent.

The biggest opportunity presented by today's sell-off are in Intel and Qualcomm, David Wong, the Wells Fargo analyst who downgraded the sector, said on CNBC Monday.

"These are stocks with particularly strong fundamentals," Wong said. "Intel has recovered nicely from its glitch in its Sandy Bridge chip set. I think it’s poised to gain this year and also benefit from strength in the server end market."

"Qualcomm is an excellent tablet and smartphone play," Wong added. (Read more: Street Recklessly Selling Chip Stocks?)

Ciena also sank after the communications equipment maker forecast disappointing second-quarter sales. The results also hurt JDS Uniphase, another communications equipment maker.

Meanwhile, hard drive-maker Western Digital plans to buy Hitachi Global Storage Technologies in a $4.3 billion cash and stock transaction.

Materials were also hit hard on Monday as copper prices sank. At least 75 percent of stocks in the sector fell, led by Freeport McMoRan Copper & Gold, Louisiana-Pacific, and Allegheny Technology.

AT&T traded flat after the company said Friday evening that Rick Lindner, the chief financial officer, will retire June 1, and will be replaced by John Stephens, currently controller.

Starbucks gained after Morgan Stanley upgraded the coffee retailer to "overweight" from "equal weight," citing growth in domestic and international units, and the company's plans to enter the $3 billion single-serve coffee market and bring its packaged coffee business in-house.

Volume on the consolidated tape of the New York Stock Exchange was 4 billion shares, while 1 billion changed hands on the NYSE floor.

In economic news, total consumer borrowing rose at an annual rate of $5 billion in January on strong car sales, or 2.5 percent, the fourth consecutive monthly gains, according to the Federal Reserve. Auto loans rose 6.9 percent. Credit-card debt fell 6.4 percent.

the Federal Reserve's policies are not responsible for rising food and energy costs, Chicago Federal Reserve President Charles Evans told CNBC on Monday. He also said rising prices are isolated, and not an indication that inflation is on the rise.

Meanwhile, Dallas Federal Reserve Bank President Richard Fisher said he doubted the Fed's latest efforts to stimulate the economy, known as quantitative easing 2, were doing much good, and told the Institute of International Bankers in prepared remarks that he would vote to scale back or stop the $600 billion bond-buying program if it proves to be "demonstrably counterproductive."

But Federal Reserve Bank President Dennis Lockhart said the uncertainty created by the unrest in the Middle East raises the possibility the central bank could consider more stimulus should things get worse. Lockhart spoke before a conference sponsored by the National Association for Business Economics.

Later this week, investors will turn their attention to trade data, weekly jobless claims, retail sales and consumer sentiment as well as the Bank of England’s monthly policy decision.

The dollar rose slightly against a basket of currencies as the euro fell despite rising above $1.40 earlier in the session. On Monday, Moody’s downgraded Greece’s sovereign debt rating by three notches.

European markets closed lower on rising oil prices. The FTSEurofirst 300 index fell 0.3 percent.