NEW YORK U.S. stock prices fell on Wednesday, retreating further from their record highs on disappointing results from several top companies, while stronger-than-expected U.S. and European factory data spurred selling in safe-haven U.S. and German government debt, sending their yields higher.
Poor earnings from Caterpillar and AT&T overshadowed robust results from iPad and iPhone maker Apple and data showing a pick-up in U.S. 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 U.S. 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" U.S. 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 U.S. 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, U.S. blue-chip stocks turned negative, while the Nasdaq Composite Index clung to their gains.
The Dow Jones industrial average closed down 25.50 points, or 0.16 percent, at 15,542.24. The Standard & Poor's 500 Index finished down 6.45 points, or 0.38 percent, at 1,685.94. The Nasdaq Composite Index ended up 0.33 points, or 0.01 percent, at 3,579.60.
Shares of heavy equipment maker Caterpillar (CAT.N) fell 2.4 percent to $83.44 after it reported lower quarterly profits and reduced its outlook for full-year earnings.
AT&T stock (T.N) shed 1.1 percent to $35.40 after the No. 2 U.S. 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.
After the market closed, Facebook (FB.O) reported stronger-than-expected results, sending its shares up 15 percent from its close of $26.51.
The improved outlook for the United States and Europe reduced the safe-haven appeal of low-risk Treasuries and Bunds.
Benchmark U.S. 10-year government notes fell 20/32 in price to yield 2.584 percent, the highest level in about 1-1/2 weeks, while German Bund futures were down more than 1 point or 0.86 percent at 142.58 after falling to their lowest levels in two weeks.
Unlike their U.S. counterparts, European shares clung to gains. Europe's broad FTSEurofirst 300 index ended up 0.6 percent at 1,214.63. It had risen nearly 1 percent earlier due to a 0.9 percent rise in technology stocks on the back of Apple's (AAPL.O) forecast-beating results posted after the U.S. market closed on Tuesday. Apple shares were up 6 percent at $443.86, their highest level since June 10.
MSCI's world equity index was down 0.25 percent 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.
Euro zone flash PMIs: link.reuters.com/cuh64s
China, euro zone, U.S. manufacturing PMIs: link.reuters.com/vat64t
U.S. new home sales link.reuters.com/qer34t
The better prospects for the U.S. economy supported the greenback, which rose 0.9 percent at 100.26 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 up 0.39 percent at 82.265.
A stronger dollar stoked profit-taking in gold, which hit a one-month high earlier this week. Spot bullion prices fell 1.9 percent at $1,321.76 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 0.1 percent at $1.3201.
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 percent lower at $107.19 a barrel and U.S. crude finished $1.84 or 1.72 percent 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.
(Additional reporting by Angela Moon, Rodrigo Campos, Nick Olivari in New York, Richard Hubbard, Jan Harvey in London; Editing by Dan Grebler and Chizu Nomiyama)