Pfizer Inc , the world's largest drugmaker, fell 1.6 percent after its Alzheimer's drug did not meet the main goals of a late-stage clinical trial, weighing on the Dow industrials.
The latest draft proposals to regulate the financial sector, including provisions to stop proprietary trading at banks, pressured financials, while investors worried over President Barack Obama's attempts to revive his healthcare overhaul.
He came across as saying he's going to do whatever it takes to get his agenda through, and obviously that agenda has been viewed as theoretically negative for a lot of sectors in equities, Dave Lutz, managing director at Stifel Nicolaus in Baltimore.
The Dow Jones industrial average <.DJI> slipped 9.22 points, or 0.09 percent, to 10,396.76. The Standard & Poor's 500 Index <.SPX> gained 0.48 point, or 0.04 percent, to 1,118.79. The Nasdaq Composite Index <.IXIC> lost 0.11 point to 2,280.68.
Stocks rose initially after the Institute for Supply Management's gauge of service sector activity and ADP's report on private employment pointed to a strengthening economy and a stabilizing labor market. The main focus for investors will be Friday's Labor Department data on unemployment in February.
That view of steady improvement was reinforced by the Federal Reserve, which said economic activity strengthened modestly across most of the 12 Fed districts during February, according to its Beige Book summary.
Signs the economy was improving helped cushion the S&P 500 as stocks in the materials sector gained along with rising commodity prices and a falling dollar. The S&P materials index <.GSPM> added 1 percent.
Pfizer shares slipped 1.6 percent to $17.32 after the Dow component said its Alzheimer's drug, being developed with Medivation Inc , did not meet the main goals of a late-stage clinical trial. Medivation shares plummeted 67.5 percent to $13.10.
Obama said it is time to pass his sweeping healthcare overhaul using only a slim Democratic majority in Congress if necessary, saying the issue is too important to be delayed by politics after a year of debate.
Big pharmaceutical companies Merck & Co , down 0.5 percent to $37.21, and Pfizer were among the biggest drags on the Dow industrials. However, health insurers ended higher, with the Healthcare Payor index <.HMO> up almost 1 percent.
Adding to the market's jitters, draft language on the so-called Volcker rule from the Obama administration suggested U.S. banks would be banned from proprietary trading and other large financial firms would face limits on such activity.
That news reignited fears of a tougher stance toward banks following talk proposed regulations would be watered down.
Financial company stocks lost ground, with the KBW Bank index <.BKX> down 0.4 percent. Goldman Sachs , which has a large proprietary trading business, fell 0.6 percent to $157.72.
Semiconductor stocks were also a drag on the market. The PHLX Semiconductor index <.SOXX> fell 0.9 percent, with SanDisk Corp, down 2.1 percent to $31.80, among the biggest drags.
About 7.79 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of nearly 5 to 4, while on the Nasdaq, about 17 stocks rose for every 16 that fell.
(Additional reporting by Ellis Mnyandu; Editing by Kenneth Barry)