The S&P 500 closed slightly lower on Tuesday as investors continued to await clarity on European Central Bank plans to shore up heavily indebted countries, but the market ended off its lows on a rally in Apple Inc .
Equities were lower for much of the session, with industrial and material names weak after a report showing manufacturing contracted by its fastest pace in more than three years. Telecom and consumer staples, two groups that tend to outperform during periods of uncertainty, led on the day.
Markets remain skittish ahead of the ECB's meeting on Thursday, where ECB President Mario Draghi is expected to unveil plans to lower borrowing costs for countries such as Spain and Italy, whose bond market troubles are the latest front in the region's debt crisis.
"We're not going to get any definitive direction so long as everyone is waiting around on the Fed and ECB," said Michael Vogelzang, who helps oversee $2.2 billion as president at Boston Advisors. "Things seem very soft right now, and until that changes the market may have a hard time getting out of the range we've been in."
On Friday, Federal Reserve Chairman Ben Bernanke disappointed investors by declining to signal any imminent stimulative action to boost sluggish U.S. growth, though he kept the door open for further easing down the line.
While investors have been disappointed by past euro zone efforts to solve the crisis, some are positioning optimistically. Bill Gross, co-founder of asset-management giant PIMCO, tweeted that Draghi appeared willing to write two- to three-year checks to peripheral nations, and recommended investors buy gold and Treasury Inflation Protected Securities.
Apple, which as the largest U.S. company has an outsized impact on indexes, rose 1.5 percent to $674.97 and helped erode broader losses. Earlier, the tech giant distributed invitations to an event in San Francisco on September 12, setting the stage for what is widely expected to be the release of the iPhone 5.
The Dow Jones industrial average <.DJI> was down 54.90 points, or 0.42 percent, at 13,035.94. The Standard & Poor's 500 Index <.SPX> was down 1.64 points, or 0.12 percent, at 1,404.94. The Nasdaq Composite Index <.IXIC> was up 8.09 points, or 0.26 percent, at 3,075.06.
U.S. manufacturing contracted for a third straight month in August while firms in the sector hired the fewest workers since late 2009, according to an Institute for Supply Management survey. The data followed similar disappointing readings on manufacturing elsewhere in the world.
The Morgan Stanley cyclical index <.CYC> fell 0.9 percent. The S&P materials sector index <.GSPM> lost 1.5 percent while industrial stocks <.GSPI> fell 0.9 percent. Both were off the lows of their sessions. Cliffs Natural Resources Inc fell 6 percent to $33.68 and U.S. Steel Corp lost 3.4 percent to $18.78.
Separate data also showed U.S. construction spending in July fell by the most in a year as both the private and public sectors cut back on investment, according to a report that could dampen hopes of a pick-up in economic activity in the third quarter.
The all-important payrolls report due Friday will also be closely watched. The employment report will be the final major economic report before the Federal Open Market Committee meets on September 12-13.
Equities had risen lately on hopes the Fed will launch a third round of quantitative easing to boost the economy and that the ECB will soon start buying bonds of troubled euro zone economies to contain the debt crisis.
In company news, Valeant Pharmaceuticals International Inc agreed to buy Medicis Pharmaceutical Corp for $2.6 billion in cash. Valeant shares climbed 15 percent to $58.78 on the New York Stock Exchange while Medicis surged 38 percent to $43.65.
About 57 percent of companies traded on the New York Stock Exchange closed higher while almost three-fifths of Nasdaq-listed shares ended in positive territory.
Volume was light, with about 5.53 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 7.84 billion. Volume tends to be anemic during the summer but it has been especially low lately as investors await clarity on central bank action and many market participants were out for the Labor Day holiday.
(Editing by James Dalgleish)