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NEW YORK — Stocks edged lower Monday as some investors locked in gains from last week’s rally while others took a cautious stance ahead of some key reports and next week’s Federal Reserve meeting. 

Alfred E. Goldman, director of market analysis for A.G. Edwards & Sons Inc. in St. Louis, Mo., said it was understandable for traders “to take a little time out after the rally on Friday.” 

With investors “transitioning from bearish to bullish,” he said, the market can be expected to trade “in a choppy fashion between now and the expected rate cut a week from Tuesday.” 

The market posted strong gains on Friday, boosting the Dow 154 points, as initial worries about a dismal report on unemployment gave way to growing confidence that Fed officials will lower the central bank’s lending rates for the fifth time this year when they meet next week. That decision may also be impacted by new readings on retail sales and inflation due later this week. 

Christopher Wolfe, U.S. equity strategist at J.P. Morgan Chase in New York, said there appeared to be “profit taking in some areas and anticipation of a rate cut in others.” Energy stocks were prominent on the most active lists with the announcement of two mergers. 

Williams Companies of Tulsa, Okla., said Monday it will buy natural gas producer Barrett Resources for $2.5 billion in cash and stock, topping a $2 billion hostile bid by the U.S. unit of Royal Dutch/Shell Group. Barrett’s stock rose $2.85 to $70.15, while Williams’ stock was down $2.39 at $39.28. 

Meanwhile, Valero Energy Corp. said it was buying Texas rival Ultramar Diamond Shamrock Corp. for about $4 billion in cash and stock in a deal that will make Valero the second-largest U.S. refiner of petroleum products. Valero’s shares dropped $2.77 to $42.70, while Ultramar’s were up $7.79 at $50.50. 

Bank shares took a hit after Prudential cut its investment rating for J.P. Morgan Chase to “sell” from “hold.” J.P. Morgan, a Dow component, was down $l.40 at $49.20. Lucent Technologies shares fell 69 cents to $10.46 after the company said its chief financial officer was replaced after just a year on the job. 

The Russell 2000 index, which measures the performance of smaller companies’ stocks, was down 3.25 at 489.64. 

Declining shares outpaced advancing shares by about 5-to-4 on the New York Stock Exchange, where consolidated volume was 1.13 billion shares compared with 1.26 billion on Friday. 

Overseas markets were mixed on Monday. In Europe, Germany’s DAX index was off 0.26 percent and France’s CAC-40 rose 0.79 percent. The London Stock Exchange was closed Monday due to a national holiday. 

The benchmark 225-issue Nikkei Stock Average rose 0.74 percent to 14,529.41, the strongest close since Dec. 15. 

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