Stocks struggle after rally

NEW YORK (CNNMoney.com) -- Stocks slipped Wednesday, as two-session advance lost steam after a weak reading on the services sector of the economy and a mixed reading on the labor market unsettled investors.

After the close, Cisco Systems (CSCO, Fortune 500) and chipmaker Novellus (NVLS) reported better-than-expected quarterly sales and earnings.

The Dow Jones industrial average (INDU) lost 26 points, or 0.3%. The S&P 500 index (SPX) fell 6 points, or 0.6%. The Nasdaq composite (COMP) was little changed.

Stocks slipped through most of the session as investors mulled the implications of a weaker-than-expected reading on the services sector of the economy, and mixed reports on the jobs market, ahead of Friday's big monthly payrolls report.

Pfizer's weaker-than-expected earnings and outlook and a selloff in banks were also in the mix. A rally in the greenback dragged on dollar-traded commodities. Treasury bond prices tumbled, raising the corresponding yields.

The slight pullback followed a rally on the first two days of February, following a January slump that was Wall Street's worst monthly decline since February 2009. Some of the concerns of last month remain in place in February, however, and could cut into any additional rally attempts in the near term.

Worries about China's bank lending curbs and the Obama administration's plans to restrict bank trading led the January selloff. But investors may also have been pleading exhaustion after a big rally in 2009, in which the S&P 500 gained 23.4%.

"The tone of the market is not as good right now as it was last year," said Will Hepburn, chief investment officer at Hepburn Capital Management. He said that asset deterioration and worries about the ballooning deficit are overshadowing improved profit reports.

Meanwhile, investors are looking for more indications that a recovery is taking hold, after pushing stocks higher last year in anticipation of such a rebound.

Jobs market: Investors considered a pair of employment reports that painted a mixed picture ahead of Friday's big January jobs reading from the government.

Payroll services firm ADP reported that employers in the private sector cut 22,000 jobs in January following a revised loss of 61,000 jobs in December. Economists surveyed by Briefing.com had forecast a loss of 30,000.

Meanwhile, outplacement firm Challenger, Gray & Christmas reported that announced layoffs in January rose to a five-month high of 71,482 from 45,094 in December.

In other economic news, the Institute for Supply Management's services sector index rose to 50.5 in January from 49.8 in the previous month. Economists had thought it would rise to 51.

Quarterly profits: Dow component Pfizer (PFE, Fortune 500) reported higher quarterly earnings that missed estimates, on higher revenue that topped estimates. The drugmaker, which finished its $67 billion purchase of fellow drugmaker Wyeth in October, also forecast 2010 earnings that are short of analysts' estimates.

Looking out further, Pfizer forecast 2011 revenue that is in line with estimates and 2012 revenue that is short of its forecast from a year ago. Shares fell 3%.

Time Warner (TWX, Fortune 500) reported sales and earnings that rose from a year ago, in its first quarterly report without AOL in a decade. The media company, which is the parent of CNNMoney.com, benefited from strength in its TV and movie divisions, as well as some cost cutting at its Time Inc. brand. Time Warner also raised its dividend.

Shares fell 2%.

AOL (AOL) -- in its first quarter in a decade as a stand-alone Internet company -- said it swung to a profit of $1.4 billion from a loss of $1.9 billion a year ago. Shares were little changed.

News Corp. (NWS, Fortune 500) reported quarterly earnings and revenue after the close Tuesday that jumped from a year earlier and topped expectations. Shares gained 6% Wednesday.

On the move: Among stock movers, financial shares slipped, with the KBW Bank (BKX) sector index falling 2%.

Wells Fargo lost 2% and a number of the regional banks declined as well, including Fifth Third Bancorp (FITB, Fortune 500), Regions Financial (RF, Fortune 500) and SunTrust.

Among other movers, McDonald's (MCD, Fortune 500) shares rose 2% after Goldman Sachs reportedly added it to its Americas conviction buy list, saying it expects earnings growth at the company in 2010.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by three to two on volume of 1.06 billion shares. On the Nasdaq, decliners topped advancers three to two on volume of 2.34 billion shares.

Toyota: Shares of Toyota (TM) slumped 6% amid the continued fallout from its recall of millions of vehicles for sticking gas pedals.

Department of Transportation Secretary Ray LaHood said owners should bring cars to a dealer to get help. Earlier, LaHood told a Congressional panel that Toyota owners should stop driving their cars and bring them back for repairs. He called the earlier statement a "misstatement."

On Monday, the automaker said it will fix millions of gas pedals in recalled vehicles, eliminating a problem that caused the pedals to stick, which prompted the recall of 2.3 million vehicles in the United States. Toyota also recalled over five million vehicles due to risks that floor mats could become stuck on floor pedals.

The company is also now facing numerous complaints about brake problems in its 2010 Prius.

World markets: In overseas trading, Asian markets ended higher, gaining for a third straight session after last week's selloff. European markets tumbled too.

Commodities and the dollar: The dollar gained versus the euro and the yen, pressuring dollar-traded commodities.

COMEX gold for April delivery fell $6 to settle at $1,112 an ounce.

U.S. light crude oil for March delivery fell 25 cents to settle at $76.98 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.70% from 3.64% late Tuesday. Treasury prices and yields move in opposite directions.