Wall Street on Monday did a reality check on China's surprise weekend move to let its currency appreciate against the dollar, and investors found themselves largely unimpressed, after all.
Some market players resumed worrying about Europe after one of the continent's biggest banks had its credit rating lowered.
A strong rally in Asia spilled into U.S. trading at the opening bell, then quickly faded. The Dow Jones industrial average ended with a loss of 8.23 points, or less than 0.1%, to 10,442.41, after surging more than 140 points at the outset.
Gold, which rose to record highs early in the session, also was hit by profit taking. Near-term futures in New York tumbled $17.50, or 1.4%, to $1,239.70 an ounce.
Experts said China's decision to allow its currency to strengthen against the dollar for the first time since mid-2008 — a shift long demanded by the U.S. — should be positive for U.S. exports in the long run, as Chinese companies and consumers gain more purchasing power.
But many analysts were suspicious about the timing of the announcement, and how quickly China might allow the yuan currency to appreciate significantly.
The need for a global economic "rebalancing" — including more spending by the developing world and more saving by the developed world — is expected to be a key topic of the summit of the Group of 20 nations' leaders in Toronto beginning Saturday. So China's move obviously was politically calculated, analysts said.
"The timetable was really forced by political circumstances," said Alan Ruskin, chief currency strategist at RBS Securities in Stamford, Conn.
The decision "was essentially a tactical move to mollify foreign leaders … and to preempt U.S. lawmakers from tacking on duties to Chinese imports," said Bernard Baumohl, chief global economist at Economic Outlook Group in Princeton, N.J.
Still, some investors snapped up shares of major U.S. exporters and raw-materials producers early Monday, betting that China's shift would boost demand. Heavy-machinery giant Caterpillar rose as much as 3.8% before sliding back to close up 22 cents, or 0.3%, at $66.07. Aluminum producer Alcoa, up 9.1% at the day's high, closed with a gain of 61 cents, or 5.5%, at $11.72.
The tech-dominated Nasdaq composite index rose as much as 1.4%, but ended the session with a loss of 20.71 points, or 0.9%, at 2,289.09. That halted a seven-day winning streak.
Some investors worried about potential casualties of a stronger yuan — including retailers that might end up facing higher costs for Chinese-made goods. Wal-Mart Stores slid 53 cents, or 1%, to 51.02; Target dropped 78 cents, or 1.4%, to $52.89.
The People's Bank of China on Saturday said it had decided to "enhance" the exchange-rate flexibility of the country's currency, citing what it called an improving world economy. That gave the yuan a boost in trading Monday, even though the bank didn't change its official target rate for the currency.
The yuan strengthened to 6.798 per dollar from 6.826 on Friday — a move of about 0.4%, which looks tiny but was the largest one-day shift since late 2008.
China has held the currency largely steady, with the dollar trading for about 6.83 yuan, since the onset of the global financial crisis in mid-2008. That has brought howls from U.S. manufacturers and many members of Congress. They say China is unfairly managing its currency to maintain an export edge instead of encouraging more domestic consumption to help offset weak demand in much of the developed world.
Markets had rallied sharply in Asia on Monday after China's move, cheered by the central bank's upbeat assessment of the economic outlook.
Japan's Nikkei-225 index jumped 2.4%, India's market rose 1.7% and Hong Kong shares surged 3.1%. China's Shanghai composite index also got a boost, adding 2.9%.
European markets also were mostly higher, with major indexes up 1% to 1.5%.
But during U.S. trading Fitch Ratings cut its credit grade for French bank BNP Paribas one notch, to AA-minus, on concerns about the bank's asset quality amid Europe's debt crisis.
Fitch's decision helped weaken the euro in favor of the dollar, and that turnabout hit gold, traders said.
With China certain to carefully control any further appreciation in the yuan, analysts said Wall Street was likely to shift its focus back to the question of whether the U.S. economic recovery was holding up or losing steam.
Reports are due this week on May durable goods orders and sales of previously owned and new homes. Also, Federal Reserve policymakers meet Tuesday and Wednesday, although no change in interest rates is expected.
For markets, "Right now the economic data are running the show," said Dan Greenhaus, economic strategist at Miller Tabak & Co. in New York.