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US stock prices fell on Wednesday, retreating further from their record highs on disappointing results from several top companies, while stronger-than-expected US and European factory data spurred selling in safe-haven US and German government debt, sending their yields higher.
Poor earnings from Caterpillar and AT&T overshadowed robust earnings from iPad and iPhone maker Apple and data showing a pick-up in US manufacturing and new home sales.
Still, neither the Dow nor S&P 500 were far below the intraday record highs they set on Tuesday, while global stock prices, tracked by MSCI, lingered at a near five-year high.
"The earnings season so far has been pretty good for most companies. Investors anticipated good numbers and they got them, although the forecasts haven't been necessarily strong enough to push the market higher," said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.
"I think the market now stands at a point where you are going to need good economic numbers to really move higher."
News of a surprise improvement in US and European factory activity offset further signs China's economy is cooling. Data showing the Chinese manufacturing sector contracting for a third straight month spurred selling in oil.
Better outlooks for the United States and Europe supported the dollar and euro, while gold snapped its four-day winning streak on profit-taking.
Initial estimates of manufacturing activity across the 17-nation euro zone currency bloc showed the region on course to end its 18-month old recession, led by a surge in activity in German and French factories.
Across the Atlantic, Markit's "flash" US Manufacturing Purchasing Managers Index rose to 53.2, a four-month high, while output also was at its strongest since March.
Investor sentiment was also boosted by a US government report showing that new home sales rose to a five-year high in June even in the wake of higher mortgage rates.
The encouraging data from the United States and Europe offset worrisome news from China. A survey of its vast manufacturing sector showed Chinese activity slowed to an 11-month low in July, suggesting the world's second-biggest economy was still losing momentum.
After opening higher, US blue-chip stocks turned lower, while the Nasdaq Composite Index struggled to stay in positive territory.
In mid-afternoon trading, the Dow Jones industrial average was down 51.84 points, or 0.33%, at 15,515.90. The Standard & Poor's 500 Index was down 8.13 points, or 0.48%, at 1,684.26. The Nasdaq Composite Index was down 1.84 points, or 0.05%, at 3,577.43.
Shares of heavy equipment maker Caterpillar fell 2.8% to $83.12 after it reported lower quarterly profits and reduced its outlook for full-year earnings.
AT&T stock shed 1.5% to $35.28 after the No. 2 US mobile service provider posted quarterly profits that fell short of expectations despite better-than-expected revenues.
Caterpillar and AT&T are components of the Dow and S&P 500.
Unlike their US counterparts, European shares clung to gains. Europe's broad FTSEurofirst 300 index ended up 0.6% at 1,214.63. It had risen nearly 1% earlier due to a 0.9% rise in technology stocks on the back of Apple's forecast-beating results posted after the US market closed on Tuesday. Apple shares were up 6% at $443.86, their highest level since June 10.
MSCI's world equity index was down 0.25% on the day at 375.09, held back partly due to weakness in Asian shares on concerns over China's outlook and a subsequent downturn on Wall Street from its record highs.
The better prospects for the US economy supported the greenback, which rose 0.8% to a tad above 100 yen, moving away from a one-week low of 99.13 yen touched on Tuesday.
The dollar index rebounded after skidding to a one-month low of 81.926 on Tuesday. It was last up 0.42% at 82.286.
A stronger dollar stoked profit-taking in gold, which hit a one-month high earlier this week. Spot bullion prices fell 2.1% at $1,318.70 an ounce.
The latest euro zone factory data sent the euro to a one-month high against the dollar past $1.3256 before buying faded. The single currency was last down 0.2% at $1.3195.
The improved outlook for the United States and Europe reduced the safe-haven appeal of low-risk Treasuries and Bunds.
Benchmark US 10-year government notes fell 22/32 in price to yield 2.590%, the highest level in about 1-1/2 weeks, while German Bund futures were down more than 1 point at 142.57, the lowest in two weeks.
In the oil market, traders were focused on the weak Chinese data as the world's No. 2 economy has been a major importer of raw materials, supporting prices in recent years.
Brent oil settled $1.23 or 1.13% lower at $107.19 a barrel and US crude finished $1.84 or 1.72% lower at $105.39.
"People are worried about the growth story from China is not as good as it used to be," said Jason Pride, director of investment strategy at Glenmede in Philadelphia.
