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NEW YORK (Reuters) - Stocks struggled to extend the previous week's gains, dropping on Monday as disappointing U.S. factory numbers dampened optimism about China's economic growth. The declines broke a three-day streak of gains for the S&P 500, keeping it shy of its 50-day moving average of about 1,420, a level that the index has been below since October 22, and now serving as a key resistance point for investors.

Manufacturing activity in the United States surprisingly contracted in November, the Institute for Supply Management said, dropping to its lowest level in more than three years. Economic data has been mixed in recent months, fanning worries about the pace of growth at a time when investors are already concerned about the "fiscal cliff" issue in Washington.

Markets had opened higher as output by China's factories grew in November for the first time in more than a year, data showed. Investors look to strength from China, the world's second-largest economy, to offset weak growth in the United States and Europe. Still, the fiscal cliff remains investors' primary focus, The worry is that the combination of reduced spending and higher taxes could tip the U.S. economy back into recession. The Dow Jones industrial average (^DJI) fell 59.98 points, or 0.46 percent, to 12,965.60 at the close. The Standard & Poor's 500 Index (^GSPC) declined 6.72 points, or 0.47 percent, to 1,409.46. The Nasdaq Composite Index (^IXIC) dropped 8.04 points, or 0.27 percent, to end at 3,002.20.

Among other factors serving to offset the ISM report on U.S. factories were two developments in the euro zone: Spain formally requested the disbursement of more than $50 billion of European funds to recapitalize its crippled banking sector, while Greece said it would spend 10 billion euros ($13 billion) to buy back bonds in a bid to reduce its ballooning debt. The PHLX Europe sector index (.XEX) added 0.1 percent.

Retail stocks were among the weakest of the day, with J.C. Penney Co (JCP) off 3.2 percent at $17.36 and Staples Inc (SPLS) off 2.3 percent at $11.43. Consumer discretionary names tend to underperform during periods of economic uncertainty as consumers focus on core purchases.

Volume was light, with about 5.58 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, well below last year's daily average of 7.84 billion. Decliners outnumbered advancers on the NYSE by a ratio of 3 to 2, while on the Nasdaq, about 14 stocks fell for every 11 that rose.

Malaysia stock index closed lower yesterday at 1,607.35 on concerns over the U.S. fiscal cliff. Index futures closed lower at 1,601. Today’s Support and Resistance for December contract is located around 1,595 and 1,610 respectively.