Blue-chip stocks retreated slightly Wednesday, a day after they rocketed to their fourth-biggest point gain in history, and the dollar was mixed as Japanese trade results took some steam out of the U.S. currency.
Meanwhile, soothing U.S. economic news and sentiment that interest rates will hold steady for the near term moved bond prices higher for the second straight day.
Wall Street investors took some profits after Tuesday's nearly 175-point gain, which was spurred on by news that inflation remained in check and the economy was still growing.
The Dow Jones industrial average closed off 9.48 points at 7,886.44 on Wednesday. In the broader market, advancing issues led declines by a small margin on active New York Stock Exchange volume of 595 million shares.
The Nasdaq composite index, heavily weighed by technology stocks, was off 2.13 points at 1,666.47.
"It's a consolidation day as the market digests those gains," said Scott Bleier, chief market strategist for Prime Charter Ltd. "We broke through some major resistance levels and held on to the gains."
The dollar rose against the Japanese yen and German mark early in the day after U.S. Treasury Secretary Robert Rubin tempered fears of worsening U.S.-Japan trade relations. But it ultimately ended lower against the yen after Tokyo reported a huge gap in its trade surplus.
Japan's customs-cleared trade surplus for August rose 113.6% from a year earlier to 742.06 billion yen, far higher than analysts' expectations of about 600 billion yen.
The dollar fell to 121.00 yen from 121.22 on Tuesday.
The dollar dropped against the German mark early in U.S. trading after Bundesbank council member Ernst Welteke said he was concerned about indications of rising inflation and that upcoming economic data will be watched carefully.
Later, traders bought dollars for marks after Welteke said 11 countries may participate in the launch of the single European currency on Jan. 1, 1999. The single currency, or euro, is expected to be weaker than the mark, given the inclusion of countries with softer fiscal profiles than Germany's.
The dollar ended higher against the mark at 1.7725 from 1.7695 on Tuesday.
The bond market was higher for the second straight day on continuing interest-rate-friendly economic news.
The yield on the Treasury's key 30-year bond fell to 6.39% from 6.40% on Tuesday.
The market responded to news that housing starts fell 4.8% in August, according to the Commerce Department, which lent more confidence to the view that the Federal Reserve Board will not raise rates at the end of the month.
In addition, a periodic report from the Fed, the so-called beige book, indicated that the steadily expanding U.S. economy gained steam during the summer in much of the country, yet price and wage rises remained well under control.
The beige book summary of the national economy said prices rose "very little, if at all" in July and August at either retail or manufacturing levels.
"The Fed is definitely out this month, probably for November and maybe even for the rest of this year," Morton Swinsky of Fuji Securities Inc. in New York said regarding a possible change in interest rates.
The Russell 2,000 index of smaller shares climbed 0.97 point to a record 446.15. The Russell 2,000 Financial Services group contributed 63% of the rise.
Overseas, Tokyo's Nikkei stock average fell 1.6%, but Frankfurt's DAX index jumped 2.9% and London's FTSE-100 rose 0.7%.