U.S. stocks and Treasury bond prices fell on Thursday after a stronger-than-expected reading of the U.S. services sector and a lower jobless claims number suggested the U.S. economy may not warrant a Federal Reserve interest-rate cut.
The Institute for Supply Management said its non-manufacturing index was unchanged in August from July but still pointed to growth in services. Economists had forecast a small decline.
Earlier reports showed a smaller-than-forecast weekly jobless claims figure and a smaller-than-expected gain in wage inflation.
The Dow Jones industrial average was down 13.50 points, or 0.10 percent, at 13,291.97. The Standard & Poor's 500 Index was down 3.02 points, or 0.21 percent, at 1,469.27. The Nasdaq Composite Index was down 7.59 points, or 0.29 percent, at 2,598.36.
European shares fell and sterling also slipped after the Bank of England said it was too early to tell how recent market turbulence would affect companies and households, and left interest rates on hold.
The FTSEurofirst 300 index was down half a percent while the MSCI main world equity index was slightly down.
The euro also fell slightly against the dollar after European Central Bank President Jean-Claude Trichet said recent market volatility has led to uncertainty.
I think he's recognizing that there are new risks, such as the subprime concerns that weren't there before, said Steven Butler, director of FX trading at Scotia Capital in Toronto.
These concerns have started to weigh on other economies and basically that has taken rate hikes off the table until market conditions settle down.
U.S. stocks had earlier edged higher after Wal-Mart Stores Inc and other retailers reported August sales that beat analysts' expectations.
Everyone assumed the consumer was dead. We assumed too much, Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey, said.
Asian stocks outside Japan, as measured by MSCI, ended up 0.65 percent. Tokyo stocks also rose.
The Fed is expected to cut interest rates at its September 18 policy meeting. After Thursday's jobless claims, rate futures indicated traders are less certain the Fed will cut by 50 basis points.
Treasury prices are a little bit lower as we are seeing concerted central bank action in money markets, said T.J. Marta, fixed income strategist with Royal Bank of Canada Capital Markets in New York. We have entered a new realm here of much more explicit central bank action, he said, citing the ECB's liquidity injection as one example.
In money markets, the ECB added 42.245 billion euros ($57.4 billion) in temporary overnight funds to money markets on Thursday to ease tensions in the euro interbank lending market. It was the ECB's first injection of one-day funds in more than three weeks.
The benchmark 10-year U.S. Treasury note was down 5/32, with the yield at 4.4823 percent. The 2-year U.S. Treasury note was down 3/32, with the yield at 4.0576 percent.
U.S. crude rose 60 cents to $76.33 a barrel after refinery snags and slower imports drained U.S. gasoline and crude inventories in the world's biggest consumer, adding to concerns over fuel shortages this winter.
(Additional reporting by John Parry, Jennifer Coogan, Steven C. Johnson and Gertrude Chavez-Dreyfuss in New York)