The Dow Jones Industrial Average has advanced in 24 of the last 27 sessions, marking its longest winning streak since 1927.
"What we're seeing here is a market that has a certain amount of exuberance attached to it, the longest winning streak in 80 years," said Peter Cardillo, chief market economist at Avalon Partners.
"I'm not sure this is the long awaited pullback," he said. But " there's a lot of caution ahead of the [Fed] meeting" and "we are definitely overbought."
The Dow industrials were down 12 points at 13,300, as 19 of its 30 components were in negative territory, led by General Motors Corp. , Coca Cola Co. , and United Technologies Corp. .
Bucking the trend among Dow components, Alcoa Inc. led the gains, rising 2.7% after hedge fund Jana Partners LLC, which calls itself a "large shareholder" of the aluminum giant, urged the company to drop its bid to acquire Alcan Inc. .
Hewlett-Packard Co. rose 2.6% after the computer maker raised its earnings and revenue outlook for the second quarter.
Also, Walt Disney & Co. rose 0.7% ahead of its quarterly results after the close.
The S&P 500 lost 2.2 points to 1,507, while the technology-heavy Nasdaq Composite fell 2.6 points to 2,568. Among tech leaders, Cisco Systems Inc. rose 1.6% ahead of its results after the bell.
Trading volumes showed 1.2 billion shares exchanging hands on the New York Stock Exchange and 1.6 billion on the Nasdaq stock market. Declining issues outpaced gainers 5 to 3 on the New York Stock Exchange and by 9 to 5 on the Nasdaq.
By sector, semiconductors , gold and oil shares led the declines, while computer hardware , computer technology , and telecoms advanced.
Meanwhile, telecom shares saw some pressure. Motorola shares fell 2.3% after the company said its shareholders didn't elect billionaire dissident shareholder Carl Icahn to its board, according to an estimate.
Icahn said he thought he had won the support of many small shareholders, but lacked the backing of key, large investment funds he needed to overpower the Schaumburg, Ill., company's management.
The Fed and markets
With little on the economic docket Tuesday, investors focused on the latest bleak forecasts on housing from the National Association of Realtors.
Investors are now awaiting the Fed's decision on interest rates, and more importantly, its policy statement, on Wednesday.
"Not that there will be a lot of surprise," said Avalon's Cardillo.
Fed watchers fully expect the central bank to leave interest rates unchanged. But the words of policymakers will be closely examined to determine whether they've maintained their focus on inflation and/or they will begin to acknowledge evidence of a slowing economy.
"The tug of war between a slow economy and stubborn inflation readings will keep the Fed sidelined," said Jack Ablin, chief investment officer at Harris Private Bank, in a note.
Treasury bonds fell slightly ahead of the Fed meeting. The benchmark 10-year Treasury bond finished down 1/32 to 99 30/32, yielding 4.634%.
The dollar declined against the Japanese yen but rose against the euro. Merrill Lynch strategists said its clients would prefer to be long the euro than any other currency and expect the end of the carry trade by 2008. The carry trade involves investors borrowing in low-yielding currencies like the yen and reinvesting elsewhere.
Crude-oil futures gained 79 cents to close at $62.26 a barrel, helping higher some oil shares, including Dow component Exxon Mobil Corp. . But Occidental Petroleum Corp. and ConocoPhillips remained lower.
Gold futures dropped $3.0 to close at $687.40 an ounce, pressuring the likes of Eldorado old Corp. , Freeport McMoRan Copper & Gold and Gold Fields .
Deal news, which has provided sustained momentum for the broad market, continued unabated.
Reuters dropped 0.4% after it and Thomson set out details of a possible merger. According to the firms, Thomson is willing to make a cash-and-shares offer valued, at Monday's close, at $83.16 per U.S.-listed Reuters share, or $17.4 billion. Tom Glocer, the chief executive of Reuters, would run the combined firm.
AK Steel jumped 10.5% after the Financial Times' Alphaville Web site reported that Arcelor Mittal is in talks to buy the U.S. steel producer in a $4.5 billion, or $40 a share, deal.
By Nick Godt