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 Jones Industrial Average was down 61 points at 13,251, as 27 of its 30 components were in negative territory, led by General Motors Corp. .
Bucking the trend among Dow components, Hewlett-Packard Co. rose 2.4% 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 4.8 points to 1,504, while the technology-heavy Nasdaq Composite fell 9.4 points to 2,561. Among tech leaders, Cisco Systems Inc. dropped 0.1% ahead of its results after the bell.
Meanwhile, telecom shares saw some pressure. Motorola shares fell 1.8% 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.
With little on the economic docket Tuesday, investors might focus on March wholesale inventories figures due out at 10 a.m.
Investors are now awaiting the Fed's decision on interest rates, and more importantly, its policy statement, on Wednesday.
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 rose 23 cents to $61.70 a barrel, and gold futures dropped $3.10 to $687.30 an ounce.
Deal news continued unabated, which has provided sustained momentum for the broad market.
Reuters dropped 1.3% 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 15% 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