US stock prices receded from five-year highs on Monday, while the euro rose against the dollar on bets the European Central Bank might refrain from signaling more interest rate cuts on Thursday.
The weakness in the equities market, which was stemmed partly on caution ahead of companies beginning to report on their fourth-quarter earnings, spurred selling of oil, gold and other risky investments. This stoked some safety bids for US and German government debt.
After a jolt of confidence from last week's budget deal in Washington and encouraging factory data from China, investors turned their focus to corporate profits in the last three months of 2012, when growth in American holiday spending and corporate investments was tepid.
"We have a cautious market entering fourth-quarter earnings season," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "I think it's going to be a disappointing one this time around."
The fourth-quarter earnings season kicks off this week. Earnings are expected to be only slightly better than the third-quarter's lackluster results and analysts' current estimates are down sharply from what they were in October.
Uneasiness about corporate profits emerged after data on Friday showed US employers kept up a modest pace of hiring in December and the vast services sector expanded.
Hopes for global economic recovery got a boost after the Basel Committee of banking supervisors agreed to give banks four more years and greater flexibility than previously envisaged to build protective cash buffers. That means they can use more of their reserves to lend and help economies grow.
In midday trading, the Dow Jones industrial average was down 75.62 points, or 0.56 per cent, at 13,359.59. The Standard & Poor's 500 Index was down 8.39 points, or 0.57 per cent, at 1,458.08. The Nasdaq Composite Index was down 10.19 points, or 0.33 per cent, at 3,091.47.
Among the day's biggest movers were Nationstar Mortgage Holdings, whose shares rose 11 per cent to $US37.00 each after Bank of America entered a deal to sell the servicing rights on over $US300 billion of home loans to Nationstar and Walter Investment Management.
After touching a 22-month peak last week, the FTSE Eurofirst index of top European shares was down 0.51 per cent at 1,161.03, although the region's bank sector as measured by the STOXX euro zone bank index bucked the market trend, gaining 1.5 per cent on the Basel news on bank capital.
MSCI's broad world equity index fell 0.38 per cent but was still not far from an 18-month peak scaled when investors returned to the market after the immediate US fiscal crisis was averted by a political deal in Washington.
In the currency market, the euro was up 0.26 per cent at $US1.3105, erasing early losses. It held above a three-week low of $US1.2998 hit on Friday.
Analysts predicted the single currency would stay around those levels until after the ECB meeting. Some expect the ECB to point to the prospect of easier rates early this year, contrasting with signals from Federal Reserve policymakers that the US central bank it may pursue less-accommodative policies in the future.
The Bank of Japan is also expected to take major steps to stimulate that country's economy later this month as the new government aims to end deflation and recession.
The greenback weakened against the yen, last down 0.4 per cent at 87.80 yen. Last week, the dollar climbed to a 2-1/2- year high, which some traders reckoned was overdone.
Expectations of less-easy monetary policy from the Fed later this year mitigated the renewed safe-haven bids for US government debt. The yield on benchmark Treasury 10-year notes was 1.90 per cent, little changed from Friday after it ticked up to an eight-month high.
German Bund futures were up 30 basis points at 143.06, rebounding from a session low of 142.79 earlier.
The weakness in stocks dragged oil prices lower, but signs of improvement in the global economy rekindled bets on higher energy demand in 2013, paring their early losses
Gold and copper prices, however, were stuck in the red.
Brent crude futures were off 25 cents or 0.22 per cent at $US111.06 per barrel after rising 0.6 per cent last week, while US oil futures were down 10 cents or 0.11 per cent higher at $US92.99.
Spot gold was down 0.56 per cent at $US1,646.94 an ounce, though above Friday's $US1,625.79, its lowest price since August.
Three-month copper futures in London were down 0.16 per cent at $US8,072 a tonne after losing nearly 1 per cent the prior session.