Wall Street tumbled on Thursday as concerns over increasing disorder in Egypt and signs of exhaustion in the recent market rally weighed on investor sentiment.
Better-than-expected readings of U.S. economic growth was not enough to dislodge investor worries about rising unrest in Egypt, where gunmen fired on anti-government protesters in Cairo.
The fighting killed six and wounded more than 800 people, prompting new calls from Western powers for President Hosni Mubarak to start handing over power immediately.
Data showed the U.S. services sector grew in January at its fastest pace since August 2005, and initial claims in the latest week for state unemployment benefits fell more than expected.
The S&P 500 looked stretched from a valuation perspective. Among sectors, the PHLX Semiconductor Index <.SOX> was facing resistance above 450 after back-to-back closes higher than that level for the first time since November 2007.
The Dow Jones Transportation Average <.DJT> and the Russell 3000 index, which have topped out recently, were also showing signs of resistance to further gains.
It's a little premature to say that we are headed for a correction, but we were certainly due for some consolidation after this rally, said Brian Lazorishak, portfolio manager at Chase Investment Counsel of Charlottesville, Virginia.
The Dow Jones industrial average <.DJI> was down 26.67 points, or 0.22 percent, at 12,015.30. The Standard & Poor's 500 Index <.SPX> was down 5.30 points, or 0.41 percent, at 1,298.73. The Nasdaq Composite Index <.IXIC> was down 12.34 points, or 0.45 percent, at 2,737.22.
Merck & Co fell 2.4 percent to $33.02 and was the top drag on the Dow after the drugmaker forecast 2011 earnings below Wall Street forecasts and withdrew its longer-term profit view.
Major U.S. retailers shrugged off the snowiest January in six years to post sales that blew past analyst expectations, easing concerns that consumers were tapped out after the holidays.
Retailers posted a 4.2 percent increase in sales at stores open at least a year, beating analysts' expectations for a 2.7 percent gain, according to Thomson Reuters data. Gap Inc shares were up 4.9 percent at $19.97.
(Editing by Padraic Cassidy)