U.S. stocks edged lower on Monday as bank shares fell on fears that financial reform making its way through Congress will curb profits, while Caterpillar's strong results buoyed the Dow.

A proposal to overhaul financial regulation that could restrict lucrative derivatives trading was expected to face a crucial Senate test vote on Monday and weighed on financial shares.

JPMorgan fell 2.3 percent to $43.89 and Bank of America slipped 2.1 percent to $18.05. The KBW bank index <.BKX> dropped 3.1 percent.

Most of the big banks' profits come from trading and if you restrict their trading profits, that's going to restrict their overall profits, said Keith Springer, president of Capital Financial Advisory Services in Sacramento, California.

The regional banks will be hurt the most because they can't make up the cost of the fees the financial reform is going to charge them.

But Caterpillar Inc shares rose after the heavy machinery maker raised its full-year profit forecast and said economic conditions are definitely improving. The stock gained 4.2 percent to $71.65, keeping the Dow industrials afloat in positive territory.

The Dow Jones industrial average <.DJI> edged up 0.75 point, or 0.01 percent, to close at 11,205.03. The Standard & Poor's 500 Index <.SPX> dropped 5.23 points, or 0.43 percent, to 1,212.05. The Nasdaq Composite Index <.IXIC> lost 7.20 points, or 0.28 percent, to 2,522.95.

On the New York Stock Exchange, nearly eight shares fell for every seven that rose, while on the Nasdaq, decliners beat advancers by a ratio of about 14 to 13.

Shares of health insurer Humana Inc fell 4.3 percent to $43.56 over the fallout from the recently passed health reform law and on profit-taking after the company posted a strong earnings report.

The Morgan Stanley healthcare payor index <.HMO> tumbled 2.7 percent and all its components were negative.

Citigroup Inc fell 5.1 percent to $4.61 after the U.S. Treasury said it would begin selling part of the 27 percent stake it holds in the bank after $45 billion in taxpayer-funded bailouts.

Positive corporate earnings and a flurry of deals pushed some stocks sharply higher.

Whirlpool Corp jumped 10 percent to close at $112.42. Earlier, Whirlpool's stock hit an all-time high at $118.44 after the world's largest appliance maker reported earnings that beat estimates and raised its full-year profit view.

Hertz Global Holdings Inc said it agreed to buy Dollar Thrifty Automotive Group Inc for about $1.2 billion, while Charles River Laboratories International , the U.S. clinical research company, said it plans to acquire Shanghai-based WuXi PharmaTech Inc for $1.6 billion.

Dollar Thrifty's stock gained 10.9 percent to $43.07, while shares of acquirer Hertz shot up 14.1 percent to $14.69.

In the pharmaceutical research realm, the U.S.-listed shares of WuXi surged 17.1 percent to $19.41, while the stock of acquirer Charles River Laboratories slid 15.6 percent to $33.55.

In the financial services sector, a stock transaction was in the news. Stifel Financial Corp will acquire rival Thomas Weisel Partners Group Inc for about $300 million in stock, the companies announced.

Stifel Financial's stock slipped 2.4 percent to $54.41 on the New York Stock Exchange, while Thomas Weisel shares soared 68.1 percent to $7.33 on Nasdaq.

About 9.31 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

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