NEW YORK (Reuters) - Stocks on Wall Street retreated from record levels during a quiet trading day 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 highs.
Without any other major news, U.S. shares were left directionless, with volume the lightest of the year for a full session.
"It was a pretty quiet day," said Paul Zemsky, head of asset allocation at ING Investment Management in New York. "We're almost done with earnings and the quarter will remain lackluster. It's hard to disappoint but earnings are not fantastic."
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 .DJI fell 46.23 points or 0.3 percent, to 15,612.13, the S&P 500 .SPX lost 2.53 points or 0.15 percent, to 1,707.14 and the Nasdaq Composite .IXIC added 3.364 points or 0.09 percent, to 3,692.951.
European shares .FTEU3 closed up 0.1 percent at a two-month high, while the MSCI world equity index .MIWD00000PUS 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 drop in last month's unemployment rate puts the Fed nearer to dialing back the program, Dallas Fed President Richard Fisher said on Monday.
The U.S. dollar fell 0.6 percent to 98.31 yen, and slipped 0.1 percent against a basket of currencies .DXY.
"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 11/32 in price to yield 2.6381 percent, not far from a two-year high.
News of rebounding oil production in Libya and the North Sea pressured oil prices, though that was tempered by the strong economic data. Brent crude was down 25 cents to $108.70 a barrel and U.S. crude settled down 38 cents to $106.56.
Additional reporting by Richard Hubbard in London and Wanfeng Zhou and Rodrigo Campos in New York; Editing by Dan Grebler