Stocks fell on Tuesday, with the Dow and S&P 500 moving off 14-month highs, as a climb in producer prices raised inflation concerns and economic bellwether General Electric issued a flat outlook for 2010.
Tuesday's slide broke a four-day winning streak for both the Dow industrials and the S&P 500.
Investors trimmed positions a day ahead of Wednesday's decision on interest rates from the Federal Reserve, reflecting their reluctance to place big bets before getting the central bank's latest assessment of both the economy and monetary policy.
A higher-than-expected increase in the overall U.S. Producer Price Index in November raised concerns that the Fed may find it difficult to keep benchmark rates at their current level near zero.
General Electric Co
GE said its industrial and capital finance profits will likely be flat next year and revenues overall are expected to drop between 5 percent and 10 percent. GE's stock, a Dow component, slid 1.3 percent to $15.75.
Although the market does not anticipate any changes in the Fed's current policy of holding U.S. interest rates near zero, even a slight change in the Fed's tone could make an impact on investor sentiment as cheap money has been one of the main agents of the stock market's rally.
The PPI data was a little bit worrisome and maybe just whatever comes out of the Fed -- there might be a little bit of concern about that, said Wayne Schmidt, chief investment officer of Gradient Investments in Minnesota.
The equity market has had a fairly good run here, and may be getting just a little bit tired here, approaching year end.
The Dow Jones industrial average <.DJI> dropped 49.05 points, or 0.47 percent, to end at 10,452.00. The Standard & Poor's 500 Index <.SPX> fell 6.18 points, or 0.55 percent, to 1,107.93. The Nasdaq Composite Index <.IXIC> lost 11.05 points, or 0.50 percent, to 2,201.05.
The S&P 500 is up more than 60 percent from a 12-year closing low in March. But the stock market has slowed its advance in recent weeks with thin volume, as traders look to lock in year-end profits and seek clues about stocks' direction for 2010.
The Fed's two-day policy-setting meeting started at 2 p.m.(1800 GMT); it will conclude with a statement on the economy expected on Wednesday around 2:15 p.m. (1815 GMT).
After the closing bell, Adobe Systems Inc
During the regular session, Best Buy Co
The New York-listed shares of Credit Suisse
By law, U.S.-regulated financial institutions cannot do business with certain countries, including Iran and Sudan. Closing its office in Tehran was among the steps that Credit Suisse has taken to resolve the matter, the company said.
On Wednesday, investors also will focus on the Consumer Price Index for November, for a more detailed picture of inflationary pressures. Overall CPI is forecast to have risen 0.4 percent in November, compared with a 0.3 percent increase in October, according to economists polled by Reuters.
Crude oil gained 1.7 percent, or $1.18, to settle at $70.69 a barrel, boosting shares of energy and materials companies. The PHLX Oil Service Sector index <.OSX> rose 1.4 percent.
The U.S. dollar strengthened against the euro, and the dollar index <.DXY> rose 0.8 percent, touching its highest level in 2-1/2 months.
In recent weeks, the connections among stocks and the dollar, oil and gold have loosened, with those asset classes trading more independently of one another.
For an illustration of those assets in 2009, see http://graphics.thomsonreuters.com/129/US_DGSPB1209.gif
Volume was light on the New York Stock Exchange, with 1.18 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 1.98 billion shares traded, short of last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 2, while on the Nasdaq, about eight stocks fell for every five that rose.
(Editing by Jan Paschal)