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US STOCKS-Wall St dips after six-day rally; Japan data weighs
* Japan's gross domestic product weaker than expected
* Tesoro eyes West Coast empire with BP refinery deal; shares jump
* CBOE VIX falls, suggesting market not overly worried on outlook
* Indexes off: Dow 0.5 pct, S&P 0.4 pct, Nasdaq 0.2 pct
By Angela Moon
NEW YORK, Aug 13 (Reuters) - U.S. stocks fell on Monday after six days of gains for the S&P 500 and as Japanese data showed their economy grew much less than expected in the second quarter, a reminder of the headwinds faced by the global economy.
The benchmark index had risen 3 percent over the prior six sessions, its longest rally since December 2010, but gains have slowed, with the index hovering at highs not seen since May. The S&P 500 was still up 1.6 percent for the month.
"Coming off the heels of a light week on the economic front, the markets remain in what some have called a state of 'melting up.' Whether the market's strength is artificially induced or not, the greater risk for traders at the moment is in missing out on the upside," said Randy Frederick, Managing Director of Active Trading & Derivatives at Charles Schwab.
With "the European Central Bank, the U.S. Federal Reserve and the People's Bank of China all standing in the wings ready to take action to support their respective economies, the downside risks in the market have been greatly reduced at the moment," he added.
The Dow Jones industrial average was down 65.34 points, or 0.49 percent, at 13,142.61. The Standard & Poor's 500 Index was down 5.24 points, or 0.37 percent, at 1,400.63. The Nasdaq Composite Index was down 6.70 points, or 0.22 percent, at 3,014.16.
Japan's gross domestic product expanded just 0.3 percent in the April-June period, half the pace expected, raising doubts about the strength of the recovery and highlighting the impact of Europe's debt crisis on worldwide demand.
But the CBOE VIX Volatility index, which is seen as a proxy for investors' fears, fell 3.5 percent to 14.22. The decline was unusual as the index typically moves inversely to the S&P 500, suggesting investors were not overly concerned about the market's outlook.
Late on Friday, the head of the San Francisco Federal Reserve said the Fed should launch a fresh round of bond buying to lower the U.S. unemployment rate more quickly, fueling speculation that the central bank could soon unveil a new round of quantitative easing.
Much of the money entering the U.S. equity market since the rally started in June has gone into defensive sectors. But investors are eyeing early signs that more aggressive areas of the market -- such as small-caps and cyclical sectors -- are starting to do better, a key factor if the rally is to continue.
"Those are the sectors that will need to lead to continue the rally, whether they can do it on their own remains to be seen. I'm not sure we will get out of the summer without a pullback," said Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
Sampson said she was still cautious over the potential for developments in Europe's debt crisis to blindside the market, adding she would be closely watching data releases to see if improvement in the U.S. labor market would continue.
"It is encouraging that offensive areas of the market are joining the rally," wrote Ari Wald, a technical analyst at Brown Brothers Harriman in New York. "In particular, the Russell 2000 , the S&P 500 High-Beta Index, and the iShares MSCI EAFE Index, broke above key resistance last week and completed near-term bottoming formations."
"This 'risk-on' breakout should provide a tailwind for the market and assist the S&P 500 in its attempt to move above its 1,420 April cycle high," he said. "A failure to confirm new cycle highs in the coming weeks to months would create worrisome multimonth divergences."
Tesoro Corp moved on Monday to create the biggest U.S. refining empire in the Pacific Basin with a $2.5 billion deal to buy BP's Carson plant in the isolated California market. Shares in Tesoro rose 8.8 percent to $38.64 while U.S.-listed shares of BP fell 0.5 percent to $42.17.
According to Thomson Reuters data through Monday, of the 454 companies in the S&P 500 that have reported second-quarter earnings to date 68 percent have reported earnings above analyst expectations, matching the beat rate for the last four quarters.
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