* U.S. stocks falter, European shares edge up to two-month
* Dollar falls against yen but draws support from data
* U.S. and euro zone service sector growth picks up
By Leah Schnurr
NEW YORK, Aug 5 Stocks on Wall Street pulled
back from record levels on Monday, while the dollar fell against
the yen as investors weighed the likelihood of when the Federal
Reserve will pare back its economic stimulus program.
Encouraging signs of growth in the global economy, however,
gave the U.S. currency support and kept declines in U.S. and
European equities in check, while a better-than-expected pick-up
in the U.S. service sector pushed bond yields to near two-year
U.S. shares added to the modest declines in the
mid-afternoon after Richard Fisher, the president of the Federal
Reserve Bank of Dallas, said the Fed should cut its massive
bond-buying program next month, unless economic data takes a
decided turn for the worse.
"It's a minor move in the market because we knew that this
was Fisher," said Joe Saluzzi, co-manager of trading at Themis
Trading in Chatham, New Jersey.
"It's a guessing game every day because different speakers
have different opinions."
The S&P 500 stock index has risen for five of the past six
weeks, gaining more than 7 percent over the period. It closed at
an all-time high on Friday despite a disappointing read on the
U.S. labor market.
Given that advance, further gains may be difficult at these
levels, analysts said, especially with the corporate earnings
season largely over.
"We have had such a strong run, a little bit of retracement
could be expected in the markets over the coming weeks," said
Sean Lynch, global investment strategist at Wells Fargo Private
Bank in Omaha, Nebraska.
The Dow Jones industrial average fell 53.49 points or
0.34 percent, to 15,604.87, the S&P 500 lost 3.4 points
or 0.2 percent, to 1,706.27 and the Nasdaq Composite
dropped 2.243 points or 0.06 percent, to 3,687.345.
European shares closed up 0.1 percent at a
two-month high, while the MSCI world equity index
slipped 0.2 percent.
Some investors took last week's weaker-than-expected U.S.
jobs report as an indication that the Fed was likely to hold
steady with its monetary stimulus program, though Monday's
service sector data tempered that view somewhat.
"The thoughts of what the Fed is going to do seem to
dominate a lot of the concerns that investors have right now,"
said Lynch. "We don't think that (jobs) number was such an
outlier that it will cause a change to what the Fed is going to
The central bank is currently buying $85 billion in bonds
monthly to keep borrowing costs low, a program that has helped
U.S. stocks surge nearly 20 percent this year. The Fed has said
it will start to slow the pace of asset purchases later this
year if the economy progresses as expected.
The U.S dollar fell 0.6 percent to 98.34 yen, and
slipped 0.1 percent against a basket of currencies.
"Ongoing uncertainty about whether the Federal Reserve will
be able to taper its monthly bond buying as part of its
quantitative easing program continues to weigh on the
greenback," said Samarjit Shankar, director of market strategy
at BNY Mellon in Boston.
The outlook for the global economy improved slightly with
purchasing managers' surveys covering thousands of companies
worldwide. One such report showed China recovered some momentum
in July, while activity in the euro zone expanded for the first
time in 18 months, though the pace was modest.
It is still unclear if the recession-hit euro area has
turned the corner. But the data pointed to more sustainable
strength in Britain, where the services sector is growing at its
fastest pace in more than six years.
Growth in the U.S. service sector also accelerated, picking
up from a three-year low as new orders surged to their highest
in five months.
Benchmark 10-year Treasury notes were down 10/32
in price to yield 2.6362 percent, just below a two-year high.
News of rebounding production in Libya and the North Sea
sent Brent crude down 23 cents to $108.72 a barrel. U.S.
crude gave up 40 cents to $106.54.