U.S. stocks slipped on Wednesday as a warning from FedEx , which said higher costs would crimp profits next year, overshadowed a surge in industrial production.
FedEx Corp , a package delivery company viewed as a window on the economy because of the wide range of industries it serves, said higher costs would constrain 2011 earnings. The warning caught investors off guard and drove the company's shares down 5.4 percent to $78.55.
But strong sales from Apple Inc's , which said it sold 600,000 of its iPhone 4 smartphones in a single day of pre-orders, helped limit the Nasdaq's decline. Apple's stock was up 2.4 percent at $266.05.
The market's slow grind comes a day after a sharp rally that pushed the S&P 500 above its 200-day moving average for the first time in a month and back into positive territory for the year.
The industrial production number is saying that demand is still there, production is still there, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco. That's telling me there is going to be a nice little increase in profit margins even on flat revenue.
The Dow Jones industrial average <.DJI> dropped 26.49 points, or 0.25 percent, to 10,378.28. The Standard & Poor's 500 Index <.SPX> dropped 3.88 points, or 0.35 percent, to 1,111.35. The Nasdaq Composite Index <.IXIC> dropped 4.95 points, or 0.21 percent, to 2,300.93.
Industrial output surged 1.2 percent in May, partly due to a spike in utility production and a solid gain of 0.9 percent
in factory output.
Shares of 3M Co , a diversified manufacturer, rose 1.1 percent to $80.62 and ranked among the Dow's biggest positive influences.
On the closely watched energy front, BP Plc agreed to U.S. President Barack Obama's demand to place about $20 billion in a special fund to pay damage claims from the Gulf of Mexico oil spill.
The British company also said it would not pay dividends to its shareholders this year, reduce its investment program and sell $10 billion of assets for a planned fund to cover the costs related to its Gulf of Mexico oil spill.
BP's New York-traded shares shot up 1.4 percent to $31.80, after earlier reaching an intraday high at $33.
Shares of some U.S. drillers and other energy companies also advanced, with Halliburton Co up 2.8 percent at $26.17.
But reflecting the housing sector's struggles and the recovery's uneven nature, the U.S. government said housing starts fell more than expected in May. Housing starts hit a five-month low, after a federal homebuyer tax credit expired.
The Morgan Stanley housing index <.HGX> fell 1.8 percent. The index tracks U.S. companies in the housing sector, including home builders like PulteGroup Inc as well as lumber companies like Weyerhaeuser Co .
Pulte shares slid 1.4 percent to $9.79, while Weyerhaeuser lost 2.4 percent to $39.79.
(Reporting by Edward Krudy; Editing by Jan Paschal)