NEW YORK Wall Street sagged on Tuesday, pulling back further from recent records, and the dollar hit a six-week low against the yen as investors tried to gauge when the Federal Reserve will wind down its stimulus program.
With the U.S. earnings season slowing, a dearth of domestic economic data this week and the focus on Fed policy, trading in U.S. stocks has been muted. Thin trading on Tuesday came a day after the market recorded its lightest volume for a full session this year.
Comments from Fed officials left the market unsure about the timing for a possible reduction in its bond-buying program, which has been a huge driver of the stock market's strong performance.
Fed officials "are all hedging themselves, which is why the market continues to just be a little bit confused and why it is going to churn," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.
"There is really no reason at the moment for the market to go higher because it is still too unclear," he said.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told Market News International that the Fed could begin trimming the size of the stimulus program as soon as September, but might wait longer if the expected improvement in economic growth in the year's second half fails to materialize.
The head of the Chicago Fed, Charles Evans, who is typically among the most dovish of the policymakers, said the U.S. central bank will probably reduce its bond purchases later this year and could do so as early as next month.
The sole U.S. economic report of the day showed the trade deficit narrowed sharply in June, suggesting an upward revision to second-quarter growth. Stocks took no direction from the data, though it did weigh on Treasuries prices earlier in the day.
The Dow Jones industrial average .DJI fell 93.39 points or 0.6 percent, to 15,518.74, the S&P 500 .SPX lost 9.77 points or 0.57 percent, to 1,697.37 and the Nasdaq Composite .IXIC dropped 27.182 points or 0.74 percent, to 3,665.77.
Europe's broad FTSEurofirst 300 index broke a six-day winning streak, closing down 0.4 percent .FTEU3, though the market was supported by data showing strong growth at factories in Germany and Britain.
An index of world stocks .MIWD00000PUS fell 0.3 percent.
The U.S. dollar fell against the yen for a third session as investors speculated that the Fed may not pull back on its quantitative easing as soon as had been expected after last week's disappointing jobs report.
The dollar fell as low as 97.51 yen, its lowest since June 26. It last traded down 0.6 percent at 97.73 yen. Expectations that the Bank of Japan, at its monthly policy meeting this week, will refrain from embarking on more stimulus measures also favored the yen.
"While the weakness of the dollar is pronounced against the yen, it is a broad sell-off that has more to do with Fed policy than BoJ policy," said Charles St-Arnaud, foreign exchange strategist at Nomura Securities in New York.
"This is symptomatic of how trading has been all summer, with so much volatility and people looking to lock in profits whenever they can," he said.
U.S. Treasuries prices ended little changed after solid demand emerged for the U.S. Treasury's $32 billion three-year note auction, the first of three coupon auctions this week. Benchmark 10-year Treasury notes were unchanged in price to yield 2.643 percent.
Oil prices tumbled after Iran's newly elected president, Hassan Rouhani, said he was ready to enter "serious and substantive" negotiations over Tehran's nuclear program, reducing the geopolitical risk potential.
Brent Crude settled down 52 cents to $108.18 a barrel, while U.S. crude dropped $1.26 to $105.30.
(Additional reporting by Chuck Mikolajczak and Julie Haviv; Editing by Leslie Adler)