NEW YORK (Reuters) - 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. But the better-than-expected pick-up in the U.S. service sector pushed bond yields to near two-year highs.
The S&P 500 has risen for five of the past six weeks, gaining more than 7 percent over the period. The index 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 was down 58.07 points, or 0.37 percent, at 15,600.29. The Standard & Poor's 500 Index was down 3.30 points, or 0.19 percent, at 1,706.37. The Nasdaq Composite Index was down 3.41 points, or 0.09 percent, at 3,686.18.
European shares provisionally closed up 0.1 percent at a two-month high, while the MSCI world equity index slipped 0.1 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 do."
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 0.4 percent to 98.49 yen, but was steady against a basket of currencies .DXY following the service sector report.
U.S. and world services PMI link.reuters.com/tar22v
Equity returns by market link.reuters.com/juh22v
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 level in five months.
"This is consistent with our view that (U.S.) GDP growth will continue to accelerate in the second half of the year, though remain subdued at around 2 percent," said Paul Edelstein, director of financial economics at IHS Global Insight, in Lexington, Massachusetts.
Benchmark 10-year Treasury notes were down 16/32 in price to yield 2.6572 percent, just below a two-year high.
News of rebounding production in Libya and the North Sea sent Brent crude down 22 cents to $108.73. U.S. crude gave up 15 cents to $106.79.
Additional reporting by Richard Hubbard in London, Julie Haviv in New York; Editing by Dan Grebler