The S&P 500 has fallen in seven of the past eight sessions, pressured by concerns about economic growth. Still, in a sign of resilience, the index is up roughly 7 percent from a low hit early in June despite the worsening economic data.

Trading volume at 5.06 billion shares on the NYSE, Amex and Nasdaq was the second lightest day this year, according to preliminary data from Reuters.

The drop in retail sales in June, the third consecutive monthly decline, contrasted with economists' expectations for a small increase and was the latest sign the recovery is flagging.

Citigroup's earnings, which exceeded estimates, followed JPMorgan Chase's (JPM.N) forecast-beating earnings on Friday, which sparked a rally and broke a six-day streak of losses by the Dow industrials.

Shares of Citigroup (C.N) gained around 0.6 percent to $26.81. Although the third largest U.S. bank by assets reported stronger-than-expected earnings, its profit fell 12 percent due to losses from credit crisis-era assets.

Giri Cherukuri, head trader at OakBrook Investments, which oversees $1.3 billion in Lisle, Illinois, said there was a tug-of-war between better-than-expected earnings in the financial sector and worries about the economy.

"The next week or so the market will be driven more by earnings than economic numbers," he said, noting that recent cautious outlooks from U.S. corporations could translate into disappointing earnings as reporting season unfolds.

Many companies have warned on profits in recent weeks. Negative to positive earnings guidance for the second quarter is 3.3 to 1, the worst since 2008, Thomson Reuters data showed.

The Dow Jones industrial average .DJI dropped 49.88 points, or 0.39 percent, to 12,727.21. The Standard & Poor's 500 Index .SPX fell 3.14 points, or 0.23 percent, to 1,353.64. The Nasdaq Composite Index .IXIC lost 11.53 points, or 0.40 percent, to 2,896.94.

"Three months in a row of lower retail sales is pretty concerning. People are going to have to lower their GDP estimates," said Paul Zemsky, head of asset allocation at ING Investment Management in New York. "Given that, I'm surprised the market is holding so well."

Zemsky said expectations that earnings turn out better than feared could be one reason. Record low U.S. Treasury bond yields and expectations that the Federal Reserve could support the economy have also helped prop up stocks.

The IMF shaved its 2013 forecast for global growth to 3.9 percent from the 4.1 percent it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5 percent.

The World Trade Organization ruled in favor of the United States, finding that China discriminates against foreign bank cards. The decision could help U.S. credit card companies like Visa, Mastercard and American Express (AXP.N).

In another credit card development, Visa Inc (V.N) and MasterCard Inc (MA.N) and banks reached a $7.25 billion settlement with U.S. retailers in a lawsuit late on Friday.

Visa rose 2.5 percent to $127.15 and MasterCard shares gained 1.7 percent to $436.89. American Express shares rose 1.2 percent to $58.64.

In mergers and acquisitions news, GlaxoSmithKline (GSK.L) is to acquire its long-time partner Human Genome Sciences Inc (HGSI.O) for $3 billion, ending a three-month hostile pursuit of the U.S. biotech company on friendly terms after sweetening its offer. [ID:nL6E8IGCB9] Shares of Human Genome (HGSI.O) rose 4.5 percent to $14.19.

In another healthcare deal, private equity firm TPG said it would buy U.S.-based Par Pharmaceutical (PRX.N) for $1.9 billion, sending Par shares up 36.7 percent to $50.

(Reporting by Edward Krudy, editing by Kenneth Barry)

• A Permanent Economic Emergency