Stocks slip after year's biggest week of gains

Wall Street, coming off its best weekly gain of the year, kicked off the holiday-shortened week in a cautious mood, as investors digested a record deal in the pharmaceutical space and kept a close eye on Europe, where the terrorism threat remains real.

The Dow Jones industrial average ended down 31 points, or 0.2%. The S&P 500 index dropped 0.1% and the Nasdaq composite fell slipped less than 0.1%.

Last week, the broad Standard & Poor's 500 stock index rallied more than 3%, its best week of 2015, as investors shrugged off the aftermath of the Paris terror attacks and instead focused on more concrete signs of how central banks in the U.S. and Europe will tweak monetary policy in coming weeks.

Minutes of he U.S. Federal Reserve's October meeting suggest that the Fed will likely hike rates at its December meeting, while the European Cental Bank's Mario Draghi reiterated that the ECB will likely up the amount of stimulus to the eurozone in coming months.

The broad U.S. stock market kicked off the week up 1.5% for the year after last week's big rally.

In deal news, U.S.-based Pfizer (PFE), maker of Viagra, and Ireland-based Allergan (AGN), maker of Botox, confirmed their blockbuster merger, which the companies value at $160 billion. The newly formed company will be domiciled in Ireland for tax benefits, in a so-called "tax inversion" transaction that has come under fire in the U.S.

Pfizer and Allergan announce record $160B merger

As part of the deal, which must pass regulatory scrutiny and be approved by shareholders, Allergan shareholders will get 11.3 shares of Pfizer stock for each Allergan share. Pfizer values the transaction at $363.63 per Allergan share. Pfizer shares finished down 2.6% to $31.33, while Allergan stock ended down 3.4% to $301.72.

Traders also eyed terror developments in Europe, where Brussels remains on lockdown for a third day as the government there rushes to try to disrupt or avoid what it warns is an imminent Paris-like terror attack.

Wall Street is in a tug of war at the moment, with the market benefiting from what has historically been a good seasonal period for stocks, but being held back by a market driven by just a handful of stocks, geopolitical risks and continued price pressures in the commodities space, says Ari Wald, a technical strategist at Oppenheimer.

Stock markets in Europe are lower. The broad Stoxx Europe 600 was down 0.5%, while the CAC 40 in Paris was off 0.5% and Germany's DAX index was 0.3% lower. Shares in Europe also surged last week despite the terror overhang. This week is beginning with the ongoing terror fears being offset by better-than-expected November manufacturing data in the eurozone.

Stocks in Asia were mixed. Japan's Nikkei 225 rose 0.1%. Hong Kong's Hang Seng index fell 0.4% and mainland China's Shanghai composite fell 0.6%.

Adam Shell on Twitter: @adamshell.