European stocks dropped 0.8 percent early, with shares in euro zone peripheral countries such as Italy and Spain among the worst hit, after data showed the euro zone's private sector back in decline last month, deflating hopes the region would avoid another recession.

Markit's Eurozone Composite PMI, which gauges the activity of manufacturing and services companies, slipped to 49.3 in February, revised down from a preliminary reading of 49.7 and below January's reading of 50.4. A reading below 50 denotes a contraction in activity, meaning Europe's private sector has been stuck in a modest decline for five of the last six months.

Chinese Premier Wen Jiabao cut his nation's 2012 growth target to an eight-year low of 7.5 percent and made boosting consumer demand the year's first priority as Beijing looks to wean the economy off its reliance on external demand and foreign capital.

On the economic front, the Institute for Supply Management releases its February non-manufacturing index at 10 a.m. ET, with economists in a Reuters survey forecasting a reading of 56.1 versus 56.8 in February. Also on deck at 10 a.m. ET, the Commerce Department releases January factory orders. Economists in a Reuters survey expect a drop of 1.5 percent after a 1.1 percent rise in the previous month.

Brent crude slipped below $124 a barrel on Monday due to demand growth concerns, but the slide was stemmed by fears of a supply crunch as Iran exports less crude on tighter Western sanctions.

American International Group (AIG) (AIG.N) is selling part of its stake in AIA Group (1299.HK) to raise about $6 billion to help the U.S. insurer repay a huge federal government bail-out.

Shares in BP (BP.N)(BP.L) rose over 2 percent on Monday after the oil giant reached an estimated $7.8 billion settlement with businesses and individuals affected by the Gulf of Mexico oil spill.

The S&P and Nasdaq notched their eighth week of gains out of the last nine, but momentum ran out on Friday as stocks ended the day lower in a thinly traded session.

The Dow Jones industrial average .DJI dipped 2.73 points, or 0.02 percent, to 12,977.57 at the close. The Standard & Poor's 500 Index .SPX slipped 4.46 points, or 0.32 percent, to 1,369.63. The Nasdaq Composite Index .IXIC shed 12.78 points, or 0.43 percent, to close at 2,976.19.

(Reporting by Blaise Robinson)

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