World stocks fell Tuesday as soft U.S. industrial production data and disappointing comments from retailers Target Corp. and Home Depot Inc. reined in some of the optimism that had sent many indexes to 13-month highs.
The dollar, however, was rallying after the heads of both the U.S. Federal Reserve and the European Central Bank seemingly went out of their way to talk the currency up.
In Europe, the FTSE 100 benchmark of leading British shares closed down 36.74 points, or 0.7 percent, at 5,345.93 _ on Monday it closed at its highest since September 2008.
Germany's DAX fell 26.39 points, or 0.5 percent, to 5,778.43 while the CAC-40 in France was 34.10 points, or 0.9 percent, lower at 3,829.06. Both indexes are near yearly highs as well.
On Wall Street, the Dow Jones industrial average was down 15.42 points, or 0.2 percent, at 10,391.54 around midday New York time while the broader Standard & Poor's 500 index fell 4.38 points, or 0.4 percent, at 1,104.92. On Monday, both U.S. indexes struck fresh 13-month highs.
Shares drifted lower throughout the day Tuesday and a raft of earnings and economic data out of the U.S. did little to alter sentiment, especially after the cautious comments from Home Depot and Target and a modest 0.1 percent gain in U.S. industrial production in October.
"Following the strong gains seen on Monday, a little bit of weakness does not come as a surprise," said David Jones, chief market strategist at IG Index.
Jones said Tuesday's selling was unlikely to be the start of a new trend downwards and stocks would likely be supported by Monday's rally.
"It does seem to have given investors and traders alike renewed confidence that this eight month recovery is not yet over and it would not be surprising to see strength return as the week rolls on," said Jones.
Stock markets have rallied strongly since March's lows as investors reined in their economic doomsday expectations to factor in a swifter than anticipated global economic rebound.
U.S. retail sales data Monday helped stoke investor optimism about the recovery in the world's largest economy. U.S. retail sales are particularly important when assessing the outlook for the global economy because U.S. consumer spending accounts for around 70 percent of the U.S. economy.
Investors are also keeping a close eye on the dollar, which won a brief respite Monday after U.S. Federal Reserve chairman Ben Bernanke said the central bank was monitoring developments in foreign exchange markets closely and that current monetary policies "will help ensure that the dollar is strong and a source of global financial stability."
Jean-Claude Trichet, the president of the European Central Bank, described Bernanke's comments on the dollar as "very important" and saying the euro was not designed to be a reserve currency.
Jane Foley, research director at Forex.com, said Trichet's comments were interesting given that currency markets have given up on hope that President Barack Obama will get Chinese authorities to allow the yuan to rise against the dollar during his visit to China.
Because the yuan is pegged at an artificially low level against the dollar, the U.S. currency offsets that strength by weakening against currencies that are traded more freely, such as the euro and yen. In the last month or so, the euro has risen to a 15-month high of $1.5061 while the yen has touched multiyear highs.
Foley said that without an adjustment in Chinese exchange rate policy, the European Central Bank "may have little option but to increase jawboning to try and stem the pace of the euro's gains against the dollar."
By late-afternoon London time, the euro was down 0.9 percent at $1.4833 while the dollar rose 0.3 percent to 89.37 yen.
Earlier in Asia, Japan's Nikkei 225 stock average lost 0.6 percent to 9,729.93 with exporters hit by the appreciating yen. Hong Kong's Hang Seng fell 0.1 percent to 22,914.15 after briefly rising above 23,000 earlier in the day and South Korea's Kospi retreated 0.4 percent to 1,585.98.
Elsewhere, Australia's benchmark faded 0.5 percent and Singapore's market dropped 0.6 percent. China's Shanghai index bucked the trend on optimism about the country's economic recovery, gaining 0.2 percent to a 14-week high of 3,282.89.
Oil prices hovered below $79 a barrel. Benchmark crude for December delivery was down 26 cents at $78.64 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.55 to settle at $78.90 on Monday.