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Major European markets were closed for Easter Monday while several exchanges were shut in Asia, reducing trading activity.
The drop in US stocks comes after the S&P 500 closed at a record high on Thursday. The S&P 500 rose 10% from January through March, its strongest quarter in a year. The Dow gained 11.3% and the Nasdaq 8.2% during the span.
The pace of growth in US manufacturing unexpectedly slowed last month, the Institute for Supply Management said. ISM said its index of national factory activity fell to 51.3 from 54.2 in February. The reading was shy of expectations, according to a Reuters poll of economists.
China's official purchasing managers index for March came in at 50.9, the highest in 11 months, although a Reuters poll showed economists had expected a rise to 52.0 from February's five-month low of 50.1.
US Treasuries rebounded after the ISM report on US manufacturing, gold prices traded near break-even and the euro extended gains versus the US dollar.
"The weaker-than-expected ISM manufacturing report was really the big bullish trigger for today's session," said Ian Lyngen, a senior government bond strategist at CRT Capital Group in Stamford, Connecticut.
The benchmark 10-year US Treasury note was up 4/32 in price to yield 1.8383%.
Early gains in bullion faded after the ISM report and as investors waited for the Labor Department's snapshot of the US job market on Friday.
Economists expect US nonfarm payrolls to increase to 2,00,000 in March after February's impressive 2,36,000 gain.
US gold futures for June delivery settled up $5.20 at $1,600 an ounce.
"I'm not expecting much to happen in markets before the payroll report, but with things that quiet, we could be more vulnerable to any surprise external news," said Dan Veru, chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey.
The Dow Jones industrial average closed down 5.69 points, or 0.04%, at 14,572.85. The Standard & Poor's 500 Index fell 7.02 points, or 0.45%, at 1,562.17. The Nasdaq Composite Index was down 28.35 points, or 0.87%, at 3,239.17.
MSCI's all-country world equity index fell 0.44% to 358.47.
New orders rose sharply in China, suggesting the underlying economic recovery is strong enough to weather any risks from patchy export performance.
In oil markets, Brent crude fell after the Chinese manufacturing data and stayed down after the release of the US survey on American factory activity, but later rebounded.
"China's still growing, and that continues to be an underlying support factor long term for the market. Whether they are at 6% or 7%, they are growing," said Carl Larry, president of Houston-based Oil Outlooks and Opinion, about Chinese manufacturing.
Brent for May delivery rose $1.06 to settle at $111.08 a barrel, while US light sweet crude oil settled down 16 cents at $97.07 a barrel.
The euro was up 0.28% at $1.2848.
Europe's common currency is down 2.6% so far this year and has slid steadily since February, when it hit a 14-month high of $1.3711.
