Stocks slipped on Tuesday as caution ahead of the Federal Reserve's monetary policy meeting overshadowed upbeat housing data.
Investors booked profits a day after the S&P 500 (.SPX) broke through a key technical range to close at a four-month high. The S&P 500 has gained about 9 percent in the last four weeks.
The Fed is expected to renew a promise to keep its portfolio from shrinking but not take any steps to ease monetary policy. The central bank acknowledged in August the U.S. recovery had lost momentum and Fed Chairman Ben Bernanke said it would renew efforts to stimulate growth if the outlook soured appreciably. A Fed statement is due at about 2:15 p.m. EDT.
"Whatever the outcome may be from the Fed, there will be an initial knee-jerk reaction as it won't satisfy everyone," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut.
If the central bank decides to expand its quantitative easing policy, stocks will react positively at first but eventually turn lower as such an "aggressive" move to spur growth may raise nervousness about the health of the economy, he added.
The Dow Jones industrial average (.DJI) was down 7.31 points, or 0.07 percent, at 10,746.31. The Standard & Poor's 500 Index (.SPX) dipped 1.00 points, or 0.09 percent, at 1,141.71. The Nasdaq Composite Index (.IXIC) was off 4.65 points, or 0.20 percent, at 2,351.18.
Technology stocks, among the top outperformers in the recent rally, were the biggest losers early in the session on profit-taking.
Dow components Cisco Systems Inc (CSCO.O) was down 1.5 percent at $21.42 and Microsoft Corp (MSFT.O) fell 1 percent to $25.22, weighing the most on the blue-chip index.
U.S. housing starts increased in August to their highest level in four months, while permits for future construction rose, suggesting the embattled housing market was starting to stabilize.
The Dow Jones home construction index (.DJUSHB) added 0.6 percent, and D.R. Horton Inc (DHI.N) rose 1 percent at $11.15.
Airline shares were broadly higher, with the ARCA airline index (.XAL) adding 1.8 percent and rising to a 34-month high. A trade group forecast global airlines will likely post sharply higher 2010 profits than previously forecast as carriers rebound from the recession.