NEW YORK – Concerns about China's economy and a warning about the U.S. credit rating sent stocks modestly lower.
Credit ratings agency Moody's said Monday that debt loads are stretched in the U.S. and Britain. The countries carry the top "AAA" rating. And a drop in the rating would make it more expensive for the government to borrow money.
Investors also looked to China, where stocks fell after the country's annual policy meeting ended without new measures to help increase consumer spending. There are concerns that China's efforts to slow its economy and curb inflation will hurt a global recovery.
"The market is cranking along here and any excuse for some profit-taking — and certainly China is a good one — is going to result in a little bit of softness," said Phil Orlando, chief equity market strategist at Federated Investors in New York.
Reports on manufacturing that topped expectations and an analyst upgrade of Wal-Mart Stores Inc. helped limit the slide in the Dow Jones industrial average. The Dow fell just over 20 points in afternoon trading, while broader indexes saw steeper drops.
The selling comes as investors await the Federal Reserve's meeting on interest-rate policy on Tuesday. While it is unlikely to raise a key interest rate lows, traders will be looking for clues in the Fed's statement about when it might raise rates. Investors have been factoring in an eventual rate hike, but any signs that the move will be made sooner rather than later is likely to hurt stocks at first.
Stocks have risen the past two weeks after most economic reports at least met expectations. The numbers signal that the economy is recovering. Still, investors are cautious as they look for signs the rebound can continue.
In early afternoon trading, the Dow fell 21.31, or 0.2 percent, to 10,603.38. The Standard & Poor's 500 index dropped 5.71, or 0.5 percent, to 1,144.28, while the Nasdaq composite index fell 17.42, or 0.7 percent, to 2,350.24.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.73 percent from 3.70 percent late Friday.
The dollar rose against most other major currencies. Gold prices also rose.
Crude oil fell $1.84 to $79.41 per barrel on the New York Mercantile Exchange.
In economic news, a report showed that manufacturing activity in New York has slowed than expected in March. The Empire State manufacturing index fell to 22.9 from 24.9 in February. Economists had predicted a drop to 21.5.
A separate report found that industrial production unexpectedly rose in February. The Fed said output from the nation's factories, mines and utilities rose 0.1 percent, while economists polled by Thomson Reuters had forecast a drop in activity. It was the eighth consecutive month of growth, showing the industry is recovering from the recession.
Investors are awaiting more details on a proposed overhaul of financial regulation. Sen. Chris Dodd, a Democrat from Connecticut and chairman of the Senate Banking Committee, is expected to present a bill Monday to remake bank rules. The plan would give the Fed the power to regulate the biggest financial firms and remove the central bank's oversight of smaller bank holding companies.
Uncertainty about the changes hurt financial stocks. Shares Citigroup Inc. fell 11 cents, or 2.8 percent, to $3.86. Goldman Sachs Group Inc. fell $3.67, or 2.1 percent, to $171.29.
Energy stocks also fell after oil dropped. Exxon Mobil Corp. slid 75 cents, or 1.1 percent, to $66.05. Chevron Corp. fell 56 cents, or 0.8 percent, to $73.16.
The broader concerns about the speed of the recovery made safe havens more attractive. Consumer staples stocks rose. Procter & Gamble Co., whose brands include Tide detergent and Gillette razors, advanced 11 cents to $63.43.
Wal-Mart rose $1.53, or 2.8 percent, to $55.43 after a Citi Investment Research analyst said the retailer looks like it will cut prices on food, one of the lowest-margin segments in retailing. Wal-Mart is competing with the supermarket companies for market share.
More than two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 347.8 million shares, compared with 425.8 million shares traded at the same point Friday.
The Russell 2000 index of smaller companies fell 6.87, or 1 percent, to 699.72.
In afternoon trading, Britain's FTSE 100 fell 0.6 percent, Germany's DAX index fell 0.7 percent, and France's CAC-40 lost 0.9 percent. Earlier, Japan's Nikkei stock average rose less than 0.1 percent.