US Treasuries fell amid signs of better-than-expected growth in the American services sector last month, ahead of key reports on economic growth and employment.
Reports on the latest GDP and jobs data, due on Thursday and Friday respectively, are a key focus this week to gauge the odds that the US Federal Reserve might start easing its pace of bond buying.
The Institute for Supply Management's non-manufacturing, or services, index increased more than expected to 55.4 in October, from 54.4 in September. That helped push yields on 10-year bonds 5 basis points higher to 2.66 per cent.
"Today's data was generally stronger than anticipated and is suggesting that the economy may have withstood the shutdown better than anticipated," Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York.
In afternoon trading in New York, the Dow Jones Industrial Average eked out a 0.02 per cent gain, while the Nasdaq Composite Index rose 0.11 per cent. The Standard & Poor's 500 Index edged 0.11 per cent lower.
Shares of Cisco Systems, up 2.7 per cent, were the biggest gainer in the Dow while those of Verizon Communications, down 1.2 per cent, were the largest decliner.
So far in 2013, the S&P 500 has added 25 per cent and investors want confirmation further gains are warranted by the outlook for both the world's largest economy and the policy of its central bank.
"A lot of people are nervous by how strong the market has been this year," Patrick Kaser, a managing director and portfolio manager at Brandywine Global Investment Management in Philadelphia, told Bloomberg News. "There is still scepticism about how the economy is really doing and whether these gains are from artificial factors, like the Fed, or from real strength in company results."
Overall this earnings season has been positive by and large. According to Thomson Reuters data, of 404 companies in the S&P 500 that have reported results through Tuesday morning, 69.6 per cent have surpassed Wall Street's expectations.
In Europe, the Stoxx 600 Index retreated 0.2 per cent, sliding from the highest close in more than five years, as the European Union downgraded its economic forecast for the euro zone.
Gross domestic product will grow by 1.1 per cent in 2014, down from the 1.2 per cent forecast in May, the European Commission said today.
Unemployment will be 12.2 per cent in 2014, up from the 12.1 per cent forecast in May.
"There are increasing signs that the European economy has reached a turning point," Olli Rehn, Commission Vice-President for economic and monetary affairs and the euro, said in a statement. "The fiscal consolidation and structural reforms undertaken in Europe have created the basis for recovery."
"But it is too early to declare victory: unemployment remains at unacceptably high levels," Rehn said. "That's why we must continue working to modernise the European economy, for sustainable growth and job creation."
Germany's DAX and the UK's FTSE 100 each slid 0.3 per cent, while France's CAC 40 slumped 0.8 per cent.