Stocks slipped Tuesday, as investors weighed a downbeat report on Europe's economy and a move from the U.S. government to deter companies from moving abroad for tax benefits.
The Dow Jones Industrial Average declined 50 points, or 0.3%, to 17122. The S&P 500 index shed four points, or 0.2%, to 1990. The Nasdaq Composite edged up two points, less than 0.1%, to 4530.
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Stocks extended declines from Monday, when the Dow snapped a five-day winning streak. That session, the Dow slid 0.6% to 17172.68 and the S&P 500 dropped 0.8% to 1994.29, after China's financial minister said major changes to the country's economic stimulus efforts aren't likely.
Tuesday, U.S. stocks fell on the heels of a decline in European shares, after a gauge of activity in the eurozone's manufacturing and services sectors for September fell to its lowest level for the year.
"People are certainly nervous about China and Europe," said Keith Bliss, senior vice president at brokerage Cuttone & Co. "But they're afraid to sell" and miss a rebound, he added. Trading volumes were muted, he said, which indicated that investors weren't ready to flee the U.S. stock market.
Markit's monthly composite purchasing managers index for the eurozone fell to 52.3 from 52.5 in August, a sign of weakness in the region's economy. Some said the decline could make it more likely that the European Central Bank could soon announce a third wave of stimulus measures to avoid deflation. The Stoxx Europe 600 index fell 1.4%, Germany's DAX Index fell 1.6%, and France's CAC 40 declined 1.9%.
"The focus on Europe...is very much on the central bank," said Phil Orlando, chief equity strategist at Federated Investors. "What's [ECB President Mario] Draghi doing to attempt to reverse this economic malaise?"
Investors were making trades meant to protect against potential losses, said Mr. Bliss, and trimming positions in riskier stocks. The Chicago Board Options Exchange's Volatility Index, which tracks how much investors are paying to protect against losses, rose 3.1% to 14.11.
Chinese manufacturing activity ticked higher in September, with the preliminary HSBC China Manufacturing Purchasing Managers Index rising to 50.5 from 50.2 in August. The report provided some reassurance to investors concerned about the impact on global markets of a slowdown in China, and shares in Shanghai as well as Australia, where China is a major trading partner, gained. Analysts, however, reiterated their expectations that growth in China would remain weak.
Tuesday brought declines in shares of companies involved in so-called inversions, in which an American company buys a rival and moves its headquarters overseas to benefit from lower taxes. The White House late Monday moved to crack down on those deals. U.S.-listed shares of Ireland-based Shire PLC fell 1.9% and AbbVie Inc. shares fell 1.8%.
"All the companies that might be involved in [deals] with a foreign partner are affected by this," said Mr. Orlando. Shareholders "are probably going to respond negatively."
A reading on U.S. manufacturing activity in July held steady at a 52-month high, according to Markit. And the manufacturing activity in the central Atlantic region expanded at a stronger-than-expected pace in September, according to a report from the Federal Reserve Bank of Richmond.
Investors also considered the launch of an attack on extremist fighters in Syria by the U.S. and five Middle Eastern countries Monday night.
This week's pause leaves the Dow up 3.6% and the S&P 500 up 7.9% in 2014 through Monday's close. Stocks have gained as low interest rates have diminished the appeal of other assets and the economy continues to improve.
The yield on the benchmark 10-year Treasury note fell to 2.550%. Treasury yields move inversely with prices.
In commodity markets, crude-oil futures rose 0.7% to $91.54 a barrel. Gold futures gained 0.3% to $1,221.70 an ounce.