* Divided government in Rome could hinder euro-zone reform
* Amgen shares up as competitor recalls drug
* Barnes & Noble rallies as chairman offers to buy part of it
* Dow off 0.1 pct, S&P 500 down 0.2 pct, Nasdaq up 0.1 pct
By Rodrigo Campos
NEW YORK, Feb 25 U.S. stocks mostly fell on Monday on fears that a divided parliament in Italy would get in the way of the country's reforms and hamper the euro zone's stability.
Election projections showed the center-right coalition led by former prime minister Silvio Berlusconi was leading in the race for the Italian Senate, contradicting initial exit polls and raising the specter of deadlock in parliament.
Earlier polls pointing to a center-left victory lifted stocks in Milan and other European markets on investors' belief that they would continue the path to pay down Italian debt, said Art Hogan, managing director of Lazard Capital Markets in New York.
"What we don't want to hear is a renewed fear about a euro- zone fracture," he said.
Last week, the benchmark S&P 500 closed below its 14-day moving average on Wednesday for the first time this year. At midday, the S&P 500 was trading just below that level, now near 1,515.
The index was, nonetheless, still near highs not seen in five years, as bets on a strong U.S. economy have given equities support. The S&P 500's slight fall last week was the first weekly drop after a seven-week string of gains.
Banks and other financial stocks led Monday's decline on concern about the sector's exposure to Italy's massive debt. The KBW Bank Index fell 0.7 percent.
The Dow Jones industrial average slipped 18.58 points or 0.13 percent, to 13,981.99. The Standard & Poor's 500 shed 2.30 points or 0.15 percent, to 1,513.30. But the Nasdaq Composite rose 3.03 points or 0.10 percent, to 3,164.85.
Barnes & Noble Inc shares climbed 11.9 percent to $15.12 after the bookseller's chairman offered to buy its declining retail business.
The Nasdaq received support from Amgen Inc, up 4.2 percent at $90.47, after a rival issued a voluntary recall of its only drug, an anemia treatment that competes with Amgen's top-selling red blood cell booster, Epogen.
The FTSEurofirst-300 index of top European shares unofficially closed up 0.1 percent and Italy's main FTSE MIB ended up 0.7 percent after earlier gaining near 4 percent.
U.S. equities will face a test with the looming debate over the so-called sequestration, U.S. government budget cuts that will take effect starting on Friday if lawmakers fail to reach an agreement over spending and taxes. The White House issued warnings about the harm the cuts are likely to inflict on the economy if enacted.
With 83 percent of the S&P 500 companies having reported results so far, 69 percent beat profit expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data.
Fourth-quarter earnings for S&P 500 companies are estimated to have risen 6 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.
UPDATE 9-Police consider manslaughter charges over London blaze as thousands evacuated
* Police fear death toll could rise above 79 (Updates number of people affected, adds political reaction)