Wall Street eyed its best month in almost 25 years despite a pullback on Monday that came as euphoria over European measures to resolve the debt crisis gave way to more cool-headed assessments of how the remedies would be implemented.
In a sign that Europe's woes were far from over, Italian and Spanish bond yields soared, prompting the European Central Bank to buy the debt, while shares of European banks came under heavy selling pressure.
The bailout was still unclear and left open a lot of questions about implementation, said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.
MF Global Holdings Ltd
Despite the declines, the benchmark S&P 500 index was up more than 12 percent for the month and remained on track for its largest monthly percentage gain since January 1987.
Many analysts believe that with a worst case scenario in Europe off the cards for the time being, stocks could gain further as investors turn their attention to stronger-than-expected economic data in the United States and China.
The Dow Jones industrial average <.DJI> dropped 142.29 points, or 1.16 percent, to 12,088.82. The Standard & Poor's 500 Index <.SPX> fell 15.30 points, or 1.19 percent, to 1,269.79. The Nasdaq Composite Index <.IXIC> lost 22.45 points, or 0.82 percent, to 2,714.70.
Bittles said the market's strong advance over the past month was leading to some selling but said the market would likely rise further, provided the S&P 500 held the top end of its recent trading range at around 1,250.
The market had a huge run in October, so the market was overbought coming into today, he said.
Banks stocks were among the worst performing, with the KBW bank index <.BKX> down 1.7 percent, although analysts said MF Global was unlikely to be big enough to spark a systemic failure in the banking sector.
JP Morgan Chase
The U.S. dollar shot up to a three-month high against the yen as the government of Japan intervened to curb its currency's appreciation, which is hurting the export-based economy.
The higher greenback pressured commodity prices, with copper off 1.5 percent and Brent crude 0.8 percent lower. Many commodities are priced in the greenback, making a spike in dollar prices more expensive for traders in other currencies and sapping demand.
The S&P materials sector <.GSPM> dropped 2.7 percent. Shares of Freeport-McMoRan Copper & Gold Inc
Volume was light, with about 3.8 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq. Declining stocks outnumbered advancing ones on the NYSE and the Nasdaq by about three-to-one.
(Reporting by Edward Krudy; Editing by Kenneth Barry)