Stocks, bonds fall before Fed meeting

Wall Street weakened overnight as investors awaited more details from US Federal Reserve policy makers on paring back their bond buying at a two-day meeting starting tomorrow.

In late afternoon trading in New York, the Dow Jones Industrial Average fell 0.15 per cent, as declines in shares of Bank of America, last 1.3 per cent weaker, and Chevron, last 1 per cent lower, weighed on the index. The Standard & Poor's 500 Index shed 0.24 per cent, while the Nasdaq Composite Index dropped 0.18 per cent.

US Treasuries also declined, pushing yields on the 10-year bond 4 basis points higher to 2.60 per cent.

"There's a concern that whatever the FOMC says or does will lead to a dramatic reaction in the market, much like we saw in June," Stephen Massocca, managing director at Wedbush Equity Management in San Francisco, told Reuters.

Investors are also eyeing further guidance from the European Central Bank and the Bank of England as their officials are set to meet as well in the coming days.

In Europe, the Stoxx 600 Index edged higher, ending just ahead of the previous close. France's CAC 40 and the UK's FTSE 100 were also steady. Germany's DAX advanced 0.2 per cent.

In terms of US economic data, the National Association of Realtors' index of pending home sales fell 0.4 per cent to 110.9 in June. The decline was smaller than anticipated.

"This latest move down in pending home sales may reflect some weakening in activity related to the recent increase in mortgage rates as well as limited available inventory for sale," Daniel Silver, an economist at JPMorgan in New York, wrote in a research note, according to Reuters.

The key reports this week are yet to come. There is second-quarter US gross domestic product on Wednesday and monthly government jobs data on Friday. GDP probably grew at a 1 per cent annualised rate last quarter, according to a Bloomberg survey.

A slew of earnings will also help set the tone. So far quarterly earnings have been decent.

Of the 265 companies in the S&P 500 that have posted results so far this reporting season, 73 per cent have exceeded analysts' estimates for profit and 56 per cent have beaten sales projections, data compiled by Bloomberg show.

There was plenty of merger and acquisition activity to start the week. Perrigo said it agreed to buy Irish drug maker Elan for US$8.6 billion, Omnicom Group agreed to merge with Publicis Groupe of France, while Canada's Hudson's Bay said it agreed to buy Saks for US$2.4 billion.