 "Wall St starts 2014 with drop as investors book profits")
All 10 S&P 500 sectors were lower, with tech among the biggest drags after Wells Fargo downgraded Apple Inc to "market perform" from "outperform," saying the company's market cap had limited upside potential without material market share gains.
Apple fell 1.4% to $553.13 and was the biggest drag on both the S&P 500 and Nasdaq 100 indexes. The S&P technology index fell 1.1%.
Adding to the weakness in the group were stocks that had enjoyed the best gains in 2013, including Netflix, which was down 1.5% at $362.82, and Micron Tech Inc, which was off 0.4% at $21.66. Both names more than tripled last year.
"There's no fundamental underpinning to the decline today, just basic portfolio rebalancing on the first day of a new tax year," said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Global Investments. "People are taking profits and seeking bargains."
Almost two-thirds of stocks traded on the New York Stock Exchange closed lower while 61% of Nasdaq-listed shares closed down.
Newmont Mining was one of the biggest gainers of the day, up 4% to $23.96; the stock was the weakest S&P component of 2013.
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Gold prices rose 1.5% following a 28% slump over 2013, a drop that broke a 12-year advance for the precious metal and was its worst yearly performance since 1981.
The Dow Jones industrial average was down 135.31 points, or 0.82%, at 16,441.35. The Standard & Poor's 500 Index was down 16.38 points, or 0.89%, at 1,831.98. The Nasdaq Composite Index was down 33.52 points, or 0.80%, at 4,143.07.
The S&P closed 2013 with a 29.6% gain for the year, its best annual performance since 1997. The Dow surged 26.5% in its best year since 1995. The Nasdaq jumped 38.3%, its best year since 2009.
In the latest economic data, weekly initial claims slipped for a second straight week while financial data firm Markit said its final US Manufacturing Purchasing Managers Index rose in December. Separately, an index of US factory activity stood at 57.0 last month, in line with forecasts but below November's reading.
"The data indicates that the economy has momentum in 2014, but the odds are low that we'll see gains of the magnitude we saw last year," said McDonald, who helps oversee more than $800 billion. "Valuations were the big driver last year, but now that those are richer we need earnings to pick up the mantle."
In a note to clients, Tobias Levkovich, chief US equity strategist at Citigroup, boosted his year-end 2014 target for the S&P 500 to 1,975 from 1,900, citing earnings progress as the primary driver.
On the upside, US Steel Corp rose 2.6% to $30.28 after KeyBanc upgraded the stock to "buy," while Urban Outfitters rose 1.8% to $37.78 on an upgrade from Jefferies.
In other markets, crude oil dropped 3% to $95.50 per barrel as Libya prepared to restart a major oilfield and on speculation of a sharp rise in crude stockpiles in Cushing, Oklahoma.
Separately, the Pipeline and Hazardous Materials Safety Administration issued a safety warning that the type of crude oil produced in the Bakken region in the northern United States could be more flammable than traditional heavy crude oil, pressuring companies that produce oil in the region.
Among the most active names, Oasis Petroleum fell 4.1% to $45.05 and Continental Resources lost 4.2% to $107.76.
About 5.21 billion shares traded on all US platforms, according to BATS exchange data.