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Stocks retreat on lackluster economic data

Stocks slipped from 13-month highs in light trading Tuesday as gains in health care companies helped offset drops in financial and industrial stocks.
/ Source: The Associated Press

A brighter economic forecast from the Federal Reserve helped the stock market pare steep losses that followed uninspiring reports on consumer sentiment and housing.

Stocks slipped from 13-month highs in light trading Tuesday as gains in health care companies helped offset drops in financial and industrial stocks. The Dow Jones industrial average fell 17 points a day after jumping by 133.

The market strengthened in afternoon trading as the Federal Reserve released minutes from its latest meeting, during which it pledged to keep rates low for the foreseeable future and said inflation remained at bay. The Fed raised its expectations for economic growth during the second half of this year, but said unemployment will remain high.

That followed the Conference Board's report that its Consumer Confidence Index rose to 49.5 in November from a revised reading of 48.7 in October. While better than expected, the report shows that consumers remain gloomy heading into the holiday season. A reading above 90 means the economy is on solid footing.

A report of the fourth straight month of improving house prices in September did little to shore up confidence. The Standard & Poor's/Case-Shiller home price index rose 0.3 percent in September from the previous month.

The government also revised its calculation of third-quarter economic growth down to 2.8 percent from its original estimate of 3.5 percent, the latest sign that the recovery is likely to be slow and bumpy.

"Today, as far as the economic data goes, I think we have a bit of a hung jury," said Howard Ward, chief investment officer of the GAMCO Growth Fund.

Ward said a warning from China's central bank that commercial banks there should control their lending also weighed on the market, particularly financial stocks. The comments raised concerns that the Chinese government could take steps to keep growth in check.

The market's modest moves came after a rally on Monday carried the Dow to its highest level in more than a year. A weakening dollar and an upbeat report on housing lured investors back into stocks after a three-day losing streak.

The Dow ended down 17.24, or 0.2 percent, to 10,433.71 after falling as much as 91 points. The Standard & Poor's 500 index fell 0.59, or 0.1 percent, to 1,105.65, while the Nasdaq composite index fell 6.83, or 0.3 percent, to 2,169.18.

The dollar's weakness has been a big driver of the stock market this year. Investors have been taking advantage of record-low interest rates to invest in assets other than cash that can earn them better returns.

As the end of the year approaches, however, safe-haven assets like the dollar and Treasurys have become more appealing as investors seek to safeguard some of their gains. At the same time, some investors who missed out on the rally that began in March are looking for opportunities to get in, creating a back-and-forth pattern that has become familiar in recent weeks.

"There are people that have done quite well and maybe they want to protect themselves, but fear and greed still drive the market and I think there are plenty of people out there that want in on the action," said William Rutherford, president of Rutherford Investment Management in Portland, Ore.

A stronger dollar put pressure on commodities. When the dollar rises, it makes commodities and related products more expensive for buyers overseas.

The ICE Futures US dollar index, a widely used measure of the dollar against other currencies, rose 0.1 percent. Oil prices fell $1.54 to settle at $76.02 a barrel on the New York Mercantile Exchange. Gold prices rose.

Among health care stocks, Medtronic Inc. jumped more than 7 percent after the medical device maker reported a surprising 59 percent increase in its quarterly profit and raised its full-year forecast. It gained $2.94 to $43.25.

Bond prices rose after a strong auction of five-year notes. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.31 percent from 3.36 percent late Monday. The yield on the five-month note dropped to 2.10 percent from 2.18 percent.

Falling stocks narrowly outpaced those that rose on the New York Stock Exchange, where volume came to a light 952 million shares, compared with 979.9 million Monday.

Analysts expect trading to be choppy this week amid light trading volume heading into the Thanksgiving holiday.

The Russell 2000 index of smaller companies fell 2.23, or 0.4 percent, to 592.58.

Overseas, China's Shanghai index fell 3.5 percent, its biggest decline in three months, after the warning from that country's central bank. Japan's Nikkei stock average fell 1 percent. In Europe, Britain's FTSE 100 fell 0.6 percent, while Germany's DAX index fell 0.6 percent and France's CAC-40 lost 0.8 percent.