“Stocks finished modestly lower across the board on the first trading day of the month, weighed by a weaker-than-expected manufacturing report and despite new details of a counter-offer from House Republicans to avert the "fiscal cliff."

The Dow Jones Industrial Average finished below the psychologically-important 13,000 level, led by DuPont and General Electric, while Cisco gained.

The S&P 500 and the Nasdaq also closed in the red. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended above 16.

Most key S&P sectors closed in the red, led by materials and industrials.Telecoms eked out a small gain.

In a letter to President Obama, House Speaker John Boehner and six other House Republican leaders called for $800 billion in revenues through tax reforms and $600 billion in health savings among other offers. Net savings under the counter-offer would total $2.2 trillion. Last week's offer from the White House was soundly rejected by both House and Senate Republicans.

Stocks have been choppy in the recent weeks as investors reacted to a chain of mixed remarks from lawmakers in Washington on the progress of the fiscal cliff talks.

On the economic front, U.S. manufacturing unexpectedly contracted to 49.5 in November, according to the Institute for Supply Management, dropping to the lowest level in nearly three years. Economists polled by Reuters had expected a reading of 51.3. A reading below 50 indicates a contraction in the sector.

Meanwhile, construction spending climbed 1.4 percent to an annual rate of $872.1 billion in October, according to the Commerce Department, thanks to stronger spending on homes. Analysts polled by Reuters had expected a 0.5 percent gain.

In Europe, Greece announced debt-buyback plans through a Dutch auction in an effort to lower its ballooning debt. The bond repurchase is key to the efforts of its foreign lenders to put Greece's debt back on sustainable footing, and will help the debt-ridden country receive funding to avoid bankruptcy.

China manufacturing data from HSBC rose to 50.5 in November from 49.5 in October, the first time that it has grown since October 2011.

On Sunday night, News Corp announced the departure of Tom Mockridge, head of its UK newspapers, widely believed to signal that he had lost out in the race to lead the company's publishing division after it is split next year to Murdoch lieutenant Robert Thomson.

Dell jumped after Goldman Sachs upgraded the company to "buy" from "sell."

Verizon also benefited from an upgrade, with the Dow component up more than 1 percent on a move from "neutral" to "buy" at Nomura, which said the telecom's "superior execution will continue to drive higher profitably." Nomura also boosted Verizon's price target from $49 to $50.

Meanwhile, Research In Motion slipped after Canaccord cut its rating on the BlackBerry maker to "cut" from "hold."

Merck rose after the pharmaceutical company started a mid-stage study of a drug to treat Alzheimer's disease.

Ford gained after the U.S. automaker announced that its November auto sales gained 6.5 percent, topping expectations. Meanwhile, General Motors edged lower after the company posted sales that fell short of estimates.

HCA HoldingsDish Network and Cato became the latest companies to declare special dividends ahead of the year-end.

Among earnings, PepBoys is scheduled to post results after the closing bell.”