Stocks snapped a four-session winning streak Monday as the dollar gained and the China-fueled rally petered out.
The Dow Jones Industrial Average ended down 8.23, or 0.1 percent, at 10,442.41, after being up more than 100 earlier after China decided to loosen the yuan's peg to the dollar.
The rally faded by late afternoon amid growing doubtsabout how big an impact such a move would have as Beijing is expected to do it gradually.
The S&P 500 and Nasdaq also finished lower, with the Nasdaq the worst off of the three. The CBOE volatility index, widely considered the best gauge of fear in the market, was above 25 at the closing bell.
Materials and industrials were the biggest gainers, while consumer discretionary and tech were among the weakest links.
Microsoft and Home Depot were among the biggest decliners on the Dow. Alcoa held onto its gains.
"Alcoa's [stock surge] strengthens the argument that there is indeed a global economic recovery taking place," said Todd Schoenberger, managing director of LandColt Trading, but he cautioned not to trust any rallies like the one earlier today.
"I don't see a positive earnings season because so many people are out of work and what's been happening in Europe is not going to have a positive impact," he added.
The yuan surged to its highest in five yearsfollowing the initial news but later backed off. The dollar gained against the euro.
Oil fell below $78 a barrel while gold eased off its record highs,falling below $1,240 an ounce.
Shares of U.S. Steel and AK Steel jumped over 2 percent.
Retailers skidded amid worries that China's move on the yuan might raise their prices on imports from China.
Walmart and Target was down over 1 percent, while Macy's and JCPenney were off more than 3 percent.
Bank stocks were mixed after Goldman Sachs slashed its earnings forecast for the group, citing a challenging trading environment. Goldman now expects U.S. bank earnings to be down about 20 percent in the second quarter from the first.
Bank of America and JPMorgan were lower, while Citigroup was higher.
There was some buzz about M&A activity picking up in the banking sector. Craig Siegenthaler, an analyst at Credit Suisse, said he sees Keycorp , Synovus and Fifth Third as ripe for an M&A deal.
Visa and MasterCard advanced after Rep. Barney Frank said he will seek to keep the the cap on debit card "swipe" fees that was approved by the Senate.
Walt Disney shares rose as the company’s “Toy Story 3” opened with a record $109 million in ticket sales, according to Hollywood.com Box Office.
And Dell slipped following news that the computer maker is in talks to use Google's Chrome operating system on its laptops.
BP shares skidded following news that the worst-case scenario rate of oil leakage from BP’s ruptured well is approximately 100,000 barrels per day, according to an internal company document — far higher than the US government’s estimate of 60,000 barrels per day.
The oil giant also said the cost of its response to the spill had hit $2 billion and that it had paid out $105 million in damages to those affected by the disaster.
Amazon and Barnes & Noble slipped after the companies announced plans to slash prices on their e-readers amid the increased competition from Apple's iPad.
Some M&A news today: Food maker Ralcorp agreed to buy American Italian Pasta in a deal valued at about $1.2 billion. And Canadian drug maker Biovail and Valeant Pharmaceuticals have agreed to merge.
The earnings calendar is light, with the latest financial results from Sonic and Steelcase expected after the close.
Walgreens and Adobe are expected to report earnings on Tuesday.
In IPO news, electric car maker Tesla's IPO is expected to price between $14 and $16 a share.
Shares of Six Flags Entertainment , the world's largest regional theme park company, rose less than 1 percent upon their return to the New York Stock Exchange after restructuring.
Volume was light, with just over 1 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 18 to 13.
TUESDAY: Existing-home sales; 2-yr note auction; Flash Crash hearing; 2-day FOMC meeting starts; primary runoff elections; Earnings from Walgreen and Adobe
WEDNESDAY: Weekly mortgage apps; new home sales; weekly oil inventories; 5-yr note auction; FOMC interest rate decision; Galleon hearing; Earnings from Nike and Bed Bath & Beyond
THURSDAY: Durable goods orders; weekly jobless claims; 7-yr note auction; iPhone 4 on sale; Yahoo shareholders meeting; Earnings from Lennar, Oracle and Research In Motion
FRIDAY: Final read on Q1 GDP; corporate profits; consumer sentiment; XTO shareholders meeting on Exxon buyout
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