Wall Street makes sharp reversal

Strong earnings fail to offset geopolitical worries as US stocks close lower.

US stocks ended lower Tuesday, with investors biding their time ahead of major economic news due later this week.

At the closing bell, the Dow Jones Industrial Average dropped 70.48 points, or 0.4%, to 16,912.11. The S&P 500 index lost 8.96 points, or 0.5%, to 1,969.95, and the Nasdaq Composite Index shed 2.21 points, or 0.1%, to 4,442.70.

Stocks gave up intraday gains to end lower amid news that the US and the European Union adopted new economic sanctions against Russia.

"These geopolitical scenarios are going to create some doubts in investors' minds," Randy Bateman, chief investment officer of Huntington Funds, said.

For the year, the Dow has gained 2% and the S&P 500 has jumped 6.6%, boosted in part by improving economic data and low interest rates. Many investors say the next leg higher depends on earnings reports and economic data. Five Dow components and 148 companies in the S&P 500 are scheduled to report results this week, according to FactSet.

Steven Rees, global head of equity strategy at JP Morgan Private Bank, said he's advising clients to look beyond political headlines and remain invested in US stocks because of improvement in economic growth and corporate earnings.

"We're starting to see early signs of a return of investment among corporations in the US," Mr Rees said. The indication of a pickup in spending by companies is a key part of JP Morgan Private Bank's view that stocks will rise this year, he said.

There were no unusual trading flows and action was in line with portfolio maintenance rather than shifting strategies, Jonathan Corpina, senior managing partner at Meridian Equity Partners, said. Tuesday's swings "just show me that the market is a little confused," Mr Corpina said.

The Federal Reserve's monetary policy statement is due Thursday 4am (AEST), with expectations for another cut in monthly bond purchases to $US25 billion from $US35bn. Officials are likely to discuss when and how to raise short-term interest rates from near zero, where they have been since late 2008.

A first look at second quarter gross domestic product due tomorrow should give investors a better sense of economic activity after the brutal winter. Economists are expecting the economy to expand by 3% in the second quarter, versus a 2.9% contraction in the first quarter.

Growth of less than the 3% expected by the market could give investors an excuse to sell stocks, Mr Bateman said, adding he's bullish on stocks. "Two disappointing quarters back-to-back could be viewed as not so supportive of consumer and corporate spending. If [the GDP number] comes in less than 3%, the market will view that as a negative," he said.

The government's jobs report for July is due on Friday, with economists expecting a gain of 230,000 non-farm jobs.

The telecommunications sector rose 2.2%, the only gain among S&P 500 sectors. Gains came after Windstream said it would spin off some assets in a move to lower its taxes, sparking speculation that other telecom companies may follow suit. Windstream shares rose 12.4%.

Frontier Communications shares rose 14.3%, while shares of AT&T rose 2.6% and Verizon Communications shares gained 0.8%.

In other corporate news, JP Morgan Chase is slashing hundreds of technology-support employees in its corporate and investment bank, The Wall Street Journal reported Tuesday. Shares fell 0.9%.

Overseas, the Stoxx Europe 600 index rose 0.3%.

In commodity markets, gold futures fell 0.4% to $US1,298.30 an ounce and crude-oil futures shed 0.7% to $US100.97 a barrel.

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