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NEW YORK (Reuters) - Stocks posted their largest drop in a month on Wednesday as traders locked in recent gains after a provisional budget deal out of Washington removed one of the near-term reasons for the Fed to keep up its current pace of economic stimulus.
Last September, the Fed cited the possibility of a hit to the economy if lawmakers didn't agree on a budget as one reason to maintain its $85-billion-a-month bond-buying program.
The bipartisan budget agreement reached late Tuesday would end three years of political confrontations and fiscal instability in Washington that climaxed in October with a partial government shutdown. A vote in the U.S. House of Representatives could come as soon as Thursday.
"You've got stability on the fiscal side, at least in the immediate future," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
She said a case could be made for the U.S. central bank to wind down stimulus beginning in January or March, but "the market is increasingly fixated on the idea the Fed will pull the trigger this meeting."
The final Fed policy statement of the year is expected on December 18, at the end of a two-day meeting.
The Fed's stimulus has been instrumental in a rally that has put the S&P 500 on track to close its strongest year in more than a decade.
The Dow Jones industrial average .DJI fell 129.60 points or 0.81 percent, to end at 15,843.53. The S&P 500 .SPX slid 20.40 points or 1.13 percent, to close at 1,782.22. The Nasdaq Composite .IXIC dropped 56.677 points or 1.4 percent, to finish at 4,003.813.
It was the largest daily decline for each of the three major U.S. stock indexes since November 7.
The 25 percent rally in the S&P 500 so far this year served as a reason for traders to sell some equities and lock in gains. The benchmark index slid throughout the day.
"People are more concerned about locking in profits in positions that have had big gains this year," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
"The fact we couldn't hold 1,800 (in the S&P 500) put people in 'hit-the-sell-button mode' as well," he said.
In one of the few items of market-moving news on Wednesday, Costco's (COST.O) profit missed Wall Street's estimates because of higher stock-based compensation expenses and spending on technology. Its shares fell 1.2 percent to close at $118.57.
Laboratory Corp (LH.N) shares tumbled 11 percent to $88.25 after the medical testing company cut the lower end of its full-year adjusted earnings forecast. The stock of rival Quest Diagnostics (DGX.N) dropped 5.8 percent to $55.20.
MasterCard (MA.N) announced a 10-for-1 stock split and a new $3.5 billion stock-buyback program, and raised its quarterly dividend by 83 percent. The news drove the stock up 3.5 percent to close at a record $790.57. Earlier, MasterCard hit a lifetime intraday high at $801.14.
Shares of its competitor Visa (V.N) rose 3.1 percent to close at a record $205.66, helping to limit the Dow's decline. Visa also reached a record intraday high at $207.90.
Mining equipment maker Joy Global Inc JOY.N forecast 2014 earnings below analysts' estimates after reporting a quarterly profit that fell short of expectations as miners cut spending. The stock fell 5.5 percent to $53.15.
Decliners beat advancers on the NYSE by a ratio of 4 to 1. On the Nasdaq, more than three issues fell for every one that rose.
About 6.5 billion shares changed hands on U.S. exchanges, above the 6.04 billion average so far this month, according to data from BATS Global Markets.
Editing by Jan Paschal