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New York - US stocks sagged on Thursday as traders cashed in on red-hot bank and technology shares, while the Federal Reserve's commitment to easy money to help the US economy rebound weakened the dollar.
The statement by the Fed, which announced on Wednesday it would probably keep interest rates near zero until at least late 2014 - some 18 months later than the Fed had suggested last year - intensified buying of medium- and long-term US government debt. The yield on five-year US notes hit 0.7538%, a low going back at least 50 years.
The pullback in bank and tech shares, which have posted double-digit percentage gains so far in January, emerged after a disappointing report on new home sales. Housing-related stocks were among the biggest losers.
The sell-off raised concerns that the stock market rally in early 2012 might be running out of steam.
"This market is tired and overbought, and we're seeing the results of that today," said Larry McMillan, president of McMillan Analysis Corp.
But the housing data did not entirely wipe out investor optimism in the wake of the Fed's pledge to keep US interest rates low for an extended period.
"All in all, it does seem like a little bit of profit-taking on the weak housing data, but we've had a good run, and maybe it's simply time for a little bit of consolidation," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "We don't think it's a major peak, just a little bit of a break here."
US stocks' declines were also fueled by some earnings that fell short of investors' expectations.
But Caterpillar, a Dow component, posted a jump in quarterly earnings that far exceeded Wall Street's forecasts.
As stocks slipped further, US crude oil and gold futures extended gains for a second day although they came off session highs.
Nagging worries about whether Greece will be able to craft a debt-swap deal and avoid a messy default also prompted investors to rush to buy safe-haven US and German government debt.
Greek media reported that Greece's private creditors were willing to lower their "final offer" of a 4% interest rate on new Greek bonds in order to clinch a deal in time to avert an unruly default. The debt-swap talks will continue on Friday.
The Fed's extended low-rate vow and Fed Chairman Ben Bernanke's suggestion that the central bank is ready to provide more stimulus if the economy deteriorates come at a time when recent data have signaled a strengthening US economy.
New orders for US durable goods - manufactured products ranging from toasters to aircraft that are meant to last three years or more - rose more than expected in December. Underlying trends continued to point to improving labor market conditions even as new claims for US unemployment benefits rose last week.
New home sales, however, fell 2.2% in December. Economists had expected a modest increase.
The Dow Jones industrial average closed down 22.33 points, at 12 734.63. The Standard & Poor's 500 Index finished down 7.60 points, at 1 318.45. The Nasdaq Composite Index ended down 13.03 points, at 2 805.28.
The benchmark 10-year US Treasury note, buoyed by the Fed's statement, shot up 17/32 in price to 100-17/32, offering a 1.94% yield, down 6 basis points.
The FTSEurofirst 300 index of leading European shares rose 1.2% to end at 1 051.72 after touching a six-month high. But Tokyo's Nikkei index slipped 0.4% to close at 8 849.47.
The MSCI world equity index trimmed gains due to the pullback by US stocks. It finished up 0.6% - less than half its earlier gain of 1.35% to a session high of 320.69.
The Fed's pledge to keep rock-bottom rates undermined the US dollar, as traders sought higher-yielding currencies.
The dollar index, which measures the greenback against a basket of other currencies, dipped 0.19% to 79.429 after touching a level near a five-week low.
The euro hit a session peak of $1.3175, its highest since December 21, and was last trading flat on the day at $1.3102. It has rallied from around $1.2980 before the Fed statement on Wednesday.
In the oil market, front-month Brent crude futures rose 98 cents, or 0.89%, to settle at $110.79 a barrel.
US crude futures for March delivery settled at $99.70 a barrel, up 30 cents, or 0.30%, after earlier touching a session high at $101.39.
Spot gold was last up 0.6% at $1 720.69 an ounce after hitting a peak of $1 729.76, the highest since December 8.
