NEW YORK (Reuters) - The Dow industrials and the S&P 500 dipped in light trading volume on Monday as investors locked in profits from Friday's record-setting rally and two brokers downgraded Merrill Lynch & Co (MER.N: Quote, Profile, Research), citing its exposure to credit market turmoil.

Concern that a weak U.S. housing sector could impact energy demand contributed to a drop of 2.2 percent in oil prices, pulling energy shares lower.

Ryder Systems Inc (R.N: Quote, Profile, Research), a truck leasing and logistics company, said a slowing economy caused it to lower its earnings outlook. Ryder's stock fell 6.8 percent to $45.92 and pushed the Dow Jones Transportation Average (.DJT: Quote, Profile, Research) down 1.2 percent.

Tech sector news helped underpin the market, with Web search company Google Inc (GOOG.O: Quote, Profile, Research)'s stock rising to a record high at $610.26 on Nasdaq, on optimism about the strength of its advertising technology.

"We had a huge rally last week. It's natural that there might be some cautiousness going into what's going to be a very important two to three weeks of earnings," said Mike Binger, portfolio manager at Thrivent Financial in Minneapolis.

Shares of Merrill Lynch & Co. (MER.N: Quote, Profile, Research) dropped 3.3 percent to $74.12 after two brokerages downgraded the stock. On Friday, Merrill Lynch said it would write down $5.5 billion for bad bets on subprime mortgages and leveraged loans.

The Dow Jones industrial average (.DJI: Quote, Profile, Research) declined 22.28 points, or 0.16 percent, to end at 14,043.73. The Standard & Poor's 500 Index (.SPX: Quote, Profile, Research) slipped 5.01 points, or 0.32 percent, to finish at 1,552.58. But the Nasdaq Composite Index (.IXIC: Quote, Profile, Research) edged up 7.05 points, or 0.25 percent, to close at 2,787.37, its highest since January 2001.

Trading was light due to the Columbus Day holiday, with U.S. government offices closed and bond markets shut.

The Dow and the S&P 500 surged to all-time highs on Friday on a stronger-than-expected employment report.

Earnings reports for the third-quarter will begin on Tuesday when aluminum company and Dow component Alcoa Inc (AA.N: Quote, Profile, Research) is due to report. Alcoa's stock fell 1.3 percent to $38.30 on the New York Stock Exchange.

One of the biggest drags on stocks was Exxon Mobil Corp (XOM.N: Quote, Profile, Research), which declined 0.7 percent to $90.68 on the NYSE. Rival Chevron Corp. (CVX.N: Quote, Profile, Research) fell 0.8 percent to $91.58.

U.S. crude oil for November delivery fell $2.20 to settle at $79.02 a barrel, with the dollar's rise also spurring the drop in oil prices.

Among other financial stocks, Citigroup Inc. (C.N: Quote, Profile, Research) shares fell 1 percent to $47.80, while the Amex Securities Broker Dealer Index (.XBD: Quote, Profile, Research) lost 1.3 percent.

Google shares closed at $609.62, up 2.6 percent.

Also in the tech sector, Hewlett-Packard Co (HPQ.N: Quote, Profile, Research) rose 2.2 percent to $52.03 and hit a record of $52.18 on the NYSE after UBS added the computer and printer maker to its strategic stock selections list.

About 851 million shares changed hands on the NYSE, well below last year's estimated daily average of 1.84 billion, while on Nasdaq, about 1.53 billion shares traded versus last year's daily average of 2.02 billion.

Declining stocks outnumbered advancing ones by a ratio of about 2 to 1 on the NYSE and by 4 to 3 on Nasdaq.