Stocks edge lower as investors weigh economic news

NEW YORK (AP) — Stocks dropped Wednesday as investors weighed conflicting economic reports and assessed the outlook for Federal Reserve stimulus.

The stock market fell in early trading after a payroll company reported that U.S. businesses added the most jobs in a year last month as manufacturing and construction expanded. Investors worried that this latest sign of economic expansion could mean that the Federal Reserve will pull back on its stimulus sooner than previously expected.

Indexes reversed course in mid-morning trading after another survey showed weakness in the U.S. service sector last month. The Institute for Supply Management said its service-sector index fell to the weakest reading since June, indicating that cautious spending by consumers and businesses may be slowing growth.

By midday stocks began sliding again.

The latest bout of investor anxiety about the Fed's plans for its stimulus program comes ahead of the government's closely watched monthly employment report due out on Friday. The Fed's $85 billion in monthly bond purchases have been supporting financial markets and encouraging investors to buy stocks by making bonds seem relatively expensive. The Fed's program is aimed at supporting the economy by keeping long-term interest rates very low to encourage borrowing and hiring.

After surging over the most of the first 11 months of the year, stocks have had a sluggish start to December, statistically one of the strongest months for the market. The S&P 500 has dropped 0.9 percent so far, paring its annual gain to 25.5 percent.

"Things have been up and down," said Bob Gavlak, a wealth adviser with Strategic Wealth Partners. "There's some general angst about whether the market is overvalued and when is it going to come back down."

CF Industries was the biggest gainer in the Standard & Poor's 500 index, surging $22.46, or 10.5 percent, to $236.70 after the fertilizer company told investors that it was evaluating whether to increase its dividends over time and said it expected to have "significant" additional cash to give to shareholders.

The Dow Jones industrial average was down 66 points, or 0.4 percent, to 15,848 as of 2:26 p.m. Eastern. The S&P 500 index fell seven points, or 0.4 percent, to 1,787. The Nasdaq composite lost 11 points, or 0.3 percent, to 4,025.

Stock slumped as the yield on the 10-year Treasury note rose to its highest level in more than two months.

The yield on the 10-year note climbed to 2.85 percent from 2.78 percent on Tuesday, resuming its upward trajectory on signs that the economy is maintaining its recovery. In September the yield climbed as high as 3 percent amid speculation that the Fed was set to announce that it would cut back on its economic stimulus.

Traders and investors are divided over how the beginning of the end of the Fed's stimulus program will affect the stock market.

The market has had an outstanding year. The Dow Jones industrial average and the Standard & Poor's 500 index have climbed to record levels. The only two months when the stock market declined both occurred when investors thought the Fed was poised to ease back on its stimulus.

While higher rates will push up borrowing costs, stock investors should welcome the end of stimulus because it shows the economy is strengthening, said Doug Cote, chief market strategist at ING Investment Management.

"Ultimately, it's a good thing," said Cote. "It means the economy is standing on its own two feet."

In commodities trading oil rose $2.20, or 2.4 percent, to $96.04. Gold climbed $26.40, or 4 percent, to $1,247.20 an ounce.

Among stocks making big moves:

— Deere & Co. rose $2.64, or 3.2 percent, to $85.35 after the farm equipment maker's board of directors approved an increase to the company's stock buyback program.

— Sears fell $4.55, or 8.2 percent, to $51 after the company's CEO, the billionaire hedge-fund manager Eddie Lampert, who is also chairman and chief executive of Sears, reduced his stake in the department store chain to less than half.

— Express fell $5.61, or 23 percent, to $19.09 after the clothing retailer reported earnings that missed analysts' estimates.