Dow stocks fell back toward session lows to finish with losses on Tuesday, as investors wondered whether the market had overextended itself in the big rally over the two previous sessions. The Nasdaq, meanwhile, clung to modest gains on some positive news from a tech bellwether.
The Dow Jones industrial average ended off 153.41 points, or 1.45%, to 10,433.41. The tech-heavy Nasdaq composite index, meanwhile, was up 6.98 points, or 0.38%, to 1,866.30. The broader Standard & Poor's 500 index was off 7.71 points, or 0.67%, to 1,146.13.
The downdraft in the broader market came despite further evidence the U.S. economy appears to be on the mend. The U.S. Institute of Supply Management's non-manufacturing index, a gauge of activity in the service sector, surged to 58.7 in February from 49.6 in January. This was the highest reading since November, 2000. A number above 50 indicates an expansion.
Investors will undoubtedly keep a watchful eye on economic releases due out on Wednesday for further signs the economy is improving. The Federal Reserve is set to release the Fed's Beige Book, an anectdotal report of economic activity. Standard & Poor's MMS says the report is expected to parallel the same cautious optimism that was reflected in Fed Chairman Alan Greenspan's Feb. 27 testimony before Congress. Though the report is likely to show manufacturing and labor market conditions remained weak, the degree should be moderating, MMS says.
Wednesday will also bring the release of U.S. factory orders and inventories for January, which are expected to show an increase of 1% and a decline of 0.9%, respectively.
Yet more companies are due to release earnings on Wednesday including apparel companies Ann Taylor Stores (ANN ) and American Eagle Outfitters (ANN ).
On Tuesday, the Bank of Tokyo-Mitsubishi-UBS Warburg report on chain store sales says they dropped 0.8% for the week ended Mar. 2 after slipping 0.4% the prior week. But a wider-ranging report that includes U.S. retail sales at discount, chain and department stores says sales rose during the four retail weeks of February, according to Instinet Research.
On the global scene, the deaths of U.S. servicemen in Afghanistan and the widening conflict in the Middle East added a layer of uncertainty to the market.
Helping the technology sector, meanwhile, was news Morgan Stanley upgraded its investment rating on shares of semiconductor giant Intel Corp. (INTC ) to strong buy from outperform.
Rival Texas Instruments (TXN ), which makes semiconductors and calculators, repeated its first quarter outlook and added that orders for chips it logged in the first two months of the quarter were strong compared with the fourth quarter.
In other corporate news, Costco Wholesale Corp. (COST ), the largest U.S. warehouse chain, posted 9% higher second-quarter profits as sales growth helped offset higher operating expenses.
Staples Inc. (SPLS ), the second largest U.S. office supply chain, posted fourth-quarter net income of $93.8 million and increased its profit estimate for this year as it cuts expenses and remodels stores.
U.S. Treasuries slumped in price on the latest strong economic data from the services sector.
European stock markets closed lower. In London, the FTSE 100 index was off 0.53%, at 5,214.00 in a bit of profit taking from recent gains.
In Germany, the DAX index was down 0.31% to 5,229.76 as the German services index rose to 49.8 in February but remained under the 50 level that would indicate recovery.
In France, the CAC 40 index eased 0.58% to 4,580.75.
Asian markets ended mixed. In Japan, the Nikkei 225 index shed 101.77 points, or 0.89%, to 11,348.45 as profit-taking in exporter shares brought an end to a four-day streak that had pushed the Nikkei up 12.2% and the broad TOPIX up 9.7%.
In Hong Kong, the Hang Seng index jumped 281.72 points, or 2.63% to 10,985.84.