US stocks slipped on Monday, as oil turned higher after last week's sharp drop and Merck and Schering-Plough led the pharmaceuticals sector lower, overshadowing gains in banks after Bank of America's stronger-than-expected results.

Merck's and Schering-Plough's shares fell after their lucrative shared cholesterol-fighting drug failed a clinical trial and for the first time raised questions about its potential cancer risk. The two drugmakers had delayed the release of their earnings to after the closing bell.

The price of oil further dampened the mood as it rose more than $2 to above $131 a barrel, adding to concerns about the impact of higher fuel costs on consumer spending. Oil's rise came on the back of its biggest weekly decline ever. The S&P retail index fell 1.7 percent.

But bank stocks added to last week's gains, after Bank of America joined its rivals Wells Fargo, JPMorgan Chase and Citigroup in reporting unexpectedly strong results.

"The Merck news is specific to that sector -- you also have oil gaining again, which is hurting retailers and the broader market," said Robert Francello, head of equity trading for Apex Capital hedge fund in San Francisco.

"But financials are doing well after Bank of America's surprisingly strong earnings, so that is helping the market."

The Dow Jones industrial average fell 29.23 points, or 0.25 percent, to 11,467.34. The Standard & Poor's 500 Index dipped 0.68 of a point, or 0.05 percent, to 1,260. The Nasdaq Composite Index slipped 3.25 points, or 0.14 percent, to 2,279.53.

Technology companies were also weak following disappointing earnings from Google and Microsoft last week.

Shares of Yahoo Inc fell 3.5 percent to $21.67 on Nasdaq. The Internet company agreed to appoint investor Carl Icahn and two of his nominees to its board. The move settles a proxy battle and makes prospects for an immediate transaction with Microsoft Corp less likely. Microsoft shares slipped 0.9 percent to $25.64.

Financial shares were up for a fourth straight day.

Bank of America shares rose 3.9 percent to $28.56 on the New York Stock Exchange and followed other positive earnings surprises by banks last week.

Shares of American International Group jumped 5.8 percent to $26.53 after Bank of America raised its rating on the insurer to "buy" from "neutral," saying the risk-to-reward ratio has become "very attractive."

In the drug sector, Merck's stock slid 6.2 percent to $35.33 and Schering-Plough sank 11.6 percent to $18.95.

The cholesterol fighter Vytorin sold by Merck and Schering-Plough failed to meet the main goal of improving outcomes in a closely watched heart study. Slightly higher incidents of cancer deaths were also seen in those taking the drug -- 39 versus 23 on placebo -- although the lead researcher said those could have occurred as a result of chance.

In other drug company news, Swiss pharmaceutical company Roche offered to buy all the outstanding shares of US partner Genentech Inc, the world's second-largest biotechnology company, that it doesn't already own for nearly $44 billion. Genentech shares jumped 14.7 percent to $93.88 on the NYSE. Earlier, Genentech's stock hit a fresh 52-week high at $94.05.

Trading was thin on the New York Stock Exchange, with about 1.20 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 1.85 billion shares traded, also below last year's daily average of 2.17 billion.

In spite of the market's modest decline on Monday, its breadth was decidedly positive.

Advancing stocks outnumbered declining ones by 2 to 1 on the NYSE and by 4 to 3 on the Nasdaq.