The S&P 500 met tough resistance on Monday, failing to break a level that has held since mid-February even as a spate of deals and underlying strength in the economy spurred optimism.

But caution ahead of earnings season held volume to its lowest level this year and suggested the recent rally may be fading.

The benchmark S&P 500 hovered slightly below 1,333, which it has not closed above since mid-February. The level is double the 12-year low hit in March 2009 and not far from 1,344, the S&P's highest since June 2008.

Volume has dried up here as investors and traders are sitting on their positions to see what happens in the upcoming earnings season, said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford, New York.

Larry McMillan, president of McMillan Analysis Corp, said the market is due for a short-term correction as technical indicators suggest the market is overbought.

Overall, the picture is still bullish, but the market is acting tired because it's overbought. With the month-end bullish influences winding down, there could be a short-lived pullback at hand, he said in a note.

The Dow Jones industrial average <.DJI> rose 23.31 points, or 0.19 percent, to end at 12,400.03. The Standard & Poor's 500 Index <.SPX> was up just 0.46 of a point, or 0.03 percent, at 1,332.87. The Nasdaq Composite Index <.IXIC> was down 0.41 points, or 0.01 percent, at 2,789.19.

On Friday, the S&P recorded its best two-week period since December, and the Dow industrials hit their highest intraday level since June 2008. Encouraging jobs data during the week helped cement hopes of a labor market recovery.

About 5.84 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, the lowest of the year and below last year's estimated daily average of 8.47 billion.

Investors were also on the lookout for the expected increase in euro-zone interest rates this week.

The European Central Bank, at its policy meeting on Thursday, is expected to raise rates by 25 basis points from a record low in reaction to rising inflationary pressures in the euro zone. Two more 25-basis-point rate hikes are factored in by year-end.

Japanese investment bank Nomura maintained a neutral view on semiconductor stocks, citing weakened demand, peak gross margins and higher capital spending in the sector.

The Philadelphia semiconductor index <.SOX> fell 0.9 percent. It has lost 2.9 percent over the past four days.

Pfizer Inc

rose 0.8 percent to $20.54 after the drugmaker agreed to sell its Capsugel unit, the world's largest maker of hard capsules, to private equity firm KKR & Co for nearly $2.4 billion.

Shares of defense contractor General Dynamics dropped 5.2 percent to $73.37 after one of its Gulfstream Aerospace jets crashed on a test flight, killing four.

Southwest Airlines Co shares dropped 1.7 percent to $12.46 after about 70 flights were canceled for safety inspections. A Southwest jet made an emergency landing with a hole in the cabin on Friday.

Advancing stocks outnumbered declining ones on the NYSE by 1,602 to 1,344, while on the Nasdaq, advancers beat decliners by 1,387 to 1,230.

(Reporting by Angela Moon; Additional reporting by Doris Frankel; Editing by Jan Paschal)