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Stocks Take Breather After Recent Surge

NEW YORK ( TheStreet) -- U.S. stocks slumped Monday amid some mild profit-taking ahead of the Federal Reserve's policy meeting later this week.

The Dow Jones Industrial Average finished down less than 3 points, or 0.02%, at 13,073, trading in a tight range of less than 90 points on the day. The blue-chip index snapped a three-day winning streak, failing to follow up on Friday's nearly 2% gain, which was spurred by hopes additional monetary stimulus is on the way soon from the world's central banks.

Breadth was slightly negative among the blue chips as 16 of the Dow's 30 components closed lower. Standouts on the downside were Merck (MRK), JPMorgan Chase (JPM), Intel (INTC) and Hewlett-Packard (HPQ).

JPMorgan was downgraded to hold at Deutsche Bank with the firm saying the risk/reward profile for the stock is less favorable with shares having rallied 19% off recent lows and that earnings expectations may be too high. The stock fell 2%.

The biggest percentage gainers were Coca-Cola (KO), Cisco Systems (CSCO) and United Technologies (UTX).

AT&T's stock advanced less than 1% after the telecom giant boosted its stock buyback program by 300 million shares after Friday's closing bell.

The S&P 500 lost less than a point, or 0.05%, to close at 1385, while the Nasdaq Composite dropped 12 points, or 0.41%, to settle at 2946.

The weakest sectors in the broad market were capital goods, health care and consumer cyclicals. Bright spots were utilities, energy and basic materials.

U.S. stocks soared Friday after eurozone leaders stepped up their pledges to preserve the single-currency bloc. The Dow finished above 13,000 the first time since May 7.

The FTSE in London settled up 1.18% and the DAX in Germany finished up 1.27%. Hong Kong's Hang Seng index settled up 1.61% and the Nikkei in Japan closed up 0.8%. The global markets got a lift as stimulus hopes increased ahead of the Federal Reserve's policy meeting on Tuesday and Wednesday and the European Central Bank's interest rate announcement on Thursday.

"At this point in the political cycle I don't think inactivity is acceptable, so therefore I see more QE as a sign that the authorities are taking action," said Dr. Tim Morgan, global head of Research at Tullett Prebon. "When you look at the nonfarm payrolls number, the demographics size is increasing all the time. You've got to generate jobs growth a lot higher just to keep unemployment rate under control."

"I applaud what the Fed and the [U.S.] government have done [so far]," Morgan added. "The U.S. is doing everything right, but is being let down by everything else that's happening in the world. You have the eurozone drifting -- not making decisions that need to be taken: either let the euro unravel or move towards a single budget. That's political decision. If one euro country leaves, it won't be the last -- and the problem of rest of economy slowing. Even the emerging economies are slowing."

On China, the world's second largest economy, Morgan pointed to a slowdown in electricity usage and energy consumption -- they've been running at 4% to 5% growth, below the 8% growth rate this forecast for the country this year by the International Monetary Fund.

"While a majority of economists recently polled by Reuters anticipate QE3 by year-end, few expect the Fed will take a significant measure this week," cautioned Phillip Futures analysts. "Nonetheless, [the] Fed could use this week's meeting to extend beyond 'late 2014' its conditional vow to maintain interest rates near zero. If Fed eases the monetary policy, this would help equities and hurt the U.S. dollar."

Meantime, investors are also looking to Europe for hopes of more central bank action after the European Central Bank President Mario Draghi pronounced that he would do "whatever it takes" to preserve the eurozone; his statements were later backed up by German Chancellor AngelaMerkel and French President François Hollande.

"Basically what the Draghi and others are doing is talking up the market," said Morgan. "The trouble is [the risk that]they won't deliver. You can't talk up market then fail to deliver. Once you make a bold statement, you have to deliver something of substance. One idea is the ECB could buy Spanish Italian debt; I don't think that can make difference -- the market will say we seen this done before."
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