* Both S&P 500 and Dow coming off record closing highs
* Tesla Motors rallies after profit outlook
* European markets closed
* Indexes off: Dow 0.25 pct, S&P 0.56 pct, Nasdaq 0.78 pct
By Chuck Mikolajczak
NEW YORK, April 1 U.S. stocks declined on Monday, with both the Dow and the S&P 500 retreating from record closing highs the previous session after weaker-than-expected U.S. manufacturing data.
The Institute for Supply Management's March manufacturing reading of 51.3 continued to show expansion, but activity slowed from the 54.2 reading in February.
A separate report showed construction spending rose more than expected in February, gaining 1.2 percent, compared with forecasts of a 1 percent rise.
"The ISM number is being misinterpreted, it is probably some misunderstanding about what the number really means - the headline doesn't look great, when in fact it is good," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
"It looks to us like this is some profit-taking after a very strong finish to the quarter."
The benchmark S&P index remains within 15 points of its record intraday high of 1,576.09, but moves may be limited this week in the absence of major catalysts before the closely watched payroll report on Friday.
The S&P 500 ended March with a record closing high, boosted by its best quarterly performance in a year, although the index struggled to reach the new record in recent weeks after another flare-up of the euro zone debt crisis.
Many investors have anticipated a pullback, with the market potentially facing more risks to the downside as uncertainty over the economic situation in Cyprus continues. European markets were closed on Monday for a holiday.
But with economic data not showing especially strong readings, investors speculate the Federal Reserve will continue the stimulus measures that have helped backstop equity prices.
The Dow Jones industrial average was down 35.75 points, or 0.25 percent, at 14,542.79. The Standard & Poor's 500 Index dropped 8.74 points, or 0.56 percent, to 1,560.45. The Nasdaq Composite Index fell 25.42 points, or 0.78 percent, to 3,242.10.
In company news, Tesla Motors Inc surged 22.2 percent to $46.31 after forecasting full profitability in the first quarter, citing strong sales of its Model S sedan.
Portfolio manager Will Danoff, whose $92 billion Fidelity Contrafund is the largest active shareholder in Apple Inc , cut the fund's stake in the iPhone maker 10 percent during the first two months of 2013. Apple shares fell 1.6 percent and were the biggest drag on both the S&P 500 and Nasdaq 100 indexes.
Dell Inc warned that it would be dangerous to take on a lot of debt and remain a public company given its worsening profit outlook, in a sign that it views proposals from Blackstone Group LP and billionaire investor Carl Icahn as fraught with risk. The comments came on Friday, which was a holiday for U.S. markets.
Shares of Dell dipped 0.5 percent to $14.26.