Leading the fall was the financial sector, with two of the top three biggest decliners on the Dow being Bank of America and JP Morgan Chase.
Citigroup downgraded Bank of America Corp to “neutral” from “buy,” saying earnings headwinds would continue at the company even as capital concerns subside. Bank of America shares were down 1.1 percent at $8.16 and JP Morgan shares fell 1.5 percent to $37.70.
The 0.4 percent rise in retail sales fell short of the 0.7 percent increase expected by economists polled by Reuters and reflected cutbacks in car purchases and online shopping.
“The data shows that consumers are still hanging in there, just not as strong as we expected,” said Scott Brown, chief economist at Raymond James at St. Petersburg in Florida.
“It shows that we are still battling some headwinds here, but the economy is definitely in a recovery mode.”
The disappointing data added to concerns stemming from Moody’s Investors Service downgrade on Monday of credit ratings on six euro-zone countries.
The Dow Jones industrial average was down 42.54 points, or 0.33 percent, at 12,831.50. The Standard & Poor’s 500 Index fell 6.30 points, or 0.47 percent, at 1,345.47. The Nasdaq Composite Index was down 12.93 points, or 0.44 percent, at 2,918.46.
On Monday, the S&P 500 rose near a seven-month high, up more than 25 percent from a low in early October. The benchmark index has encountered strong resistance in the 1,355 -1,360 area.
In other data, U.S. business inventories rose 0.4 percent in December, slightly lower than an estimated increase of 0.5 percent in December.
A third report showed import prices rose a touch more than expected in January as petroleum and food rebounded strongly, but underlying inflation pressure from imports remained muted.
Late Monday, Moody’s put Britain’s Aaa rating in jeopardy for the first time and warned it may cut France and Austria as well. Moody’s also downgraded six euro-zone nations, including Spain and Italy.
But data from Germany on Tuesday suggested that Europe’s bulwark economy is picking up pace again. The ZEW economic think tank’s monthly poll of economic sentiment jumped to 5.4 from minus 21.6 in January, well above the consensus forecast in a Reuters poll of analysts for a rise to minus 12.0.
Apple Inc plans to announce a fourth-generation (4G) version of its iPad in the first week of March, a Wall Street Journal report said, citing a person briefed on the matter. Apple shares rose slightly to $503.41 after hitting above the $500 mark for the first time on Monday.
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