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The Dow Jones Industrial Average was down 64.28 points (0.44 per cent) to 14,447.75.
The broad-based S&P 500, which had been within striking distance of an all-time high, dropped 5.20 points (0.33 per cent) to 1,551.69. The tech-rich Nasdaq Composite Index finished 9.70 points (0.30 per cent) lower at 3,235.30.
Stocks opened the day higher after the Cyprus bailout plan was sealed overnight Sunday in an eleventh hour deal.
"It's good news that disaster was avoided. But the bad news is that there's a cost to it," said Art Hogan of Lazard Capital Markets.
But by midday, markets tumbled after Jeroen Dijsselbloem, who heads the eurozone finance ministers group, told the Financial Times that the costs of bank recapitalizations shouldn't fall on the public sector, but on bondholders, shareholders and, if necessary, uninsured deposit holders.
Markets across Europe and in the US fell after the remarks, which were taken to suggest a new template for banking crises in other European countries.
Dijsselbloem subsequently released a statement via Twitter that characterized Cyprus as a "specific" case.
Trade was heavy in Dell as a bidding war emerged for the computer manufacturer, sending its shares up 2.6 per cent to $14.51.
Wall Street activist Carl Icahn and private equity firm Blackstone Group submitted rival offers to founder and chief executive Michael Dell's $24.4 billion bid to take the company private, valuing it at $13.65 per share.
Discount retailer Dollar General Corp. gained two per cent after besting earnings estimates and forecasting a strong year in 2013. The company projected same-store growth of four to six per cent in 2013.
Apollo Group, which provides online educational programs, jumped 7.1 per cent after reporting earnings that beat expectations and sticking to its 2013 forecast.
Blackberry shares fell 4.6 per cent in the wake of the launch of its Z10 smartphone in the US market on Friday.
Electronics Best Buy picked up 1.8 per cent after announcing that founder Richard Schulze was returning to the company as chairman emeritus.
Oracle dropped 2.3 per cent after it announced it was purchasing Tekelec, a provider of network signaling and data management technology for an undisclosed sum.
Biotechnology company United Therapeutics Corp. lost 2.2 per cent after the Federal Drug Administration declined to approve a new drug for treating pulmonary arterial hypertension.
Bond prices were unchanged from Friday. The yield on the 10-year Treasury remained at 1.92 per cent, while the 30-year stood at 3.14 per cent. Bond prices move inversely to yields.