Despite Monday's declines, the Dow industrials and the S&P 500 ended above their session lows. But trading has been choppy in recent weeks, with a series of gains interrupted by a few days of losses.

Banks and industrials led the S&P 500's slide, with the S&P financial sector index .GSPF and the S&P industrial sector index .GSPI each down 1.6 percent. The two sectors are closely tied to the prospects for economic growth.

The latest jobs figures added to a series of weaker-than-expected indicators, which have taken the edge off a strong multi-month rally.

The CBOE Volatility Index or VIX .VIX jumped 12.63 percent on Monday to end at 18.81. The VIX is up about 21.4 percent so far in April.

"We're coming off a period of very high optimism, which is often problematic even when the fundamental news isn't disappointing," said Bruce McCain, chief investment strategist of Key Private Bank in Cleveland, Ohio.

"The jobs report is a cautionary note that we haven't seen the last of disappointing news, suggesting there is probably a good stiff correction in our future, one tougher than an average correction."

Stocks have rallied sharply in recent months, with the S&P 500 climbing nearly 30 percent from its early October closing low to end at nearly a four-year high a week ago.

Volume was extremely light, with about 5.52 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, well below last year's daily average of 7.84 billion.

The S&P 500 slid on Monday to a session low at 1,378.24, its lowest point in more than three weeks. But the benchmark index recovered some of that lost ground in afternoon trading and held well above its 50-day moving average near 1,371.

In addition to the U.S. jobs figures released last week, China's surprisingly soft producer prices data sparked concerns about waning demand in the world's second-largest economy. The country's March PPI data reinforced expectations that a cooling economy has eclipsed inflation as the Chinese government's biggest near-term worry.

The Dow Jones industrial average .DJI fell 130.55 points, or 1.00 percent, to end at 12,929.59. The Standard & Poor's 500 Index .SPX slid 15.88 points, or 1.14 percent, to 1,382.20. The Nasdaq Composite Index .IXIC dropped 33.42 points, or 1.08 percent, to close at 3,047.08.

U.S. non-farm payrolls added 120,000 jobs in March, far below the forecast gain of 203,000 jobs, according to Labor Department data released on Friday, a market holiday. The U.S. unemployment rate slipped to 8.2 percent in March from February's 8.3 percent.

The payrolls report cast doubts on the United States' ability to help bolster the global economy as Europe's debt crisis resurfaces and worries remain whether China's economy will avoid a hard landing. But at the same time, it renewed hopes for more monetary stimulus from the Federal Reserve.

AOL (AOL.N) surged 43.3 percent to close at $26.40, touching a lifetime high of $27.47 earlier in the session after the Internet company said it would sell more than 800 of its patents and related applications to Microsoft (MSFT.O), and grant Microsoft a non-exclusive license to patents it retains for slightly over $1 billion in cash.

Microsoft, a Dow component, lost 1.3 percent to $31.10.

Following last week's modest losses, the S&P 500's key near-term support levels were 1,375 to 1,380, which were its resistance levels in late February, said Scott Davies, an analyst at Brown Brothers Harriman & Co in New York.

Earnings will come to the fore this week, with bellwethers Google Inc (GOOG.O) and JPMorgan Chase & Co (JPM.N) scheduled to report results. Alcoa (AA.N) will be the first Dow component to report results, with earnings due after Tuesday's closing bell.

Molina Healthcare Inc (MOH.N) shares plunged 26.7 percent to $25.65 after the health insurer said its Medicaid contract in Ohio would not be renewed.

(Editing by Jan Paschal)

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