While you were sleeping: UPDATED Wall Street takes breather

US stocks pulled back and government bond yields tumbled as investors retreated to assets perceived as safe.

The S&P 500 slipped from near its record high after three days of gains. US government bond yields fell to their lowest level since February as record-low yields in Europe and weaker oil and stock prices stoked demand for Treasurys.

Investors are also repositioning for the two-day Federal Open Market Committee meeting, scheduled to start on June 14.

On Wall Street, the Dow Jones Industrial Average slid 19.86 points, or 0.1%, to close at 17,985.19. The Standard & Poor's 500 Index fell 0.2% to 2115.48 and the Nasdaq Composite Index fell 0.3% to 4958.62.

"With the market being priced where it's at, there's not a lot of room for air," Jim Davis, regional investment manager at the Private Client Reserve of US Bank, told Bloomberg.

"I would not be surprised to see it back off a little more in the next week. The market has to navigate some choppy waters between now and mid-July, with the Fed next week and the Brexit vote the following."

The Dow fell as declines in shares of Caterpillar and those of American Express, down 1.1% and 0.9% respectively, outweighed advances in shares of Nike and those of Johnson & Johnson, last trading 1.3% and 1% higher respectively.

"What we have seen is that the public has been cautious and that wall of worry is ... challenging valuations ahead of some discreetly risky events and today's profit taking is almost a natural process," Julian Emanuel, a US equity and derivative strategist at UBS, told Reuters.

The yield on the benchmark 10-year Treasury note declined to 1.678% from 1.706% on Wednesday. Government bond yields in Germany, the UK and Switzerland hit record lows this week. 

US economy shows positive signs
There were positive signs on the US economy. After last Friday's surprisingly disappointing US nonfarm payrolls data, the latest report offered signs that the labour market remains solid.

A Labor Department report showed that initial claims for state unemployment benefits unexpectedly fell, sliding 4000 to a seasonally adjusted 264,000 for the week ended June 4.

"The hand-wringing over the May jobs report may be misplaced," Joel Naroff, chief economist at Economic Advisors in Holland, Pennsylvania, told Reuters.

Separately, a Commerce Department report showed wholesale inventories rose 0.6% in April, the biggest increase in 10 months, following a 0.2% gain in March.

Oil prices fell as the US dollar strengthened, dragging down shares of materials and energy companies in the S&P 500 that had helped spur recent gains. US crude fell 1.3% to $US50.56 a barrel.

In Europe, the Stoxx 600 Index ended the session with a decline of 1% from the previous close. France's CAC 40 index fell 1%, the UK's FTSE 100 index dropped 1.1%, while Germany's DAX index shed 1.3%.

European Central Bank President Mario Draghi called on the region's governments to revive output by implementing necessary structural reforms.

"Monetary policy does not exist in a vacuum," Mr Draghi said in Brussels. "Monetary policy can act decisively to support demand, to stabilise inflation expectations and to avert second-round effects on wages and prices, which is exactly what the ECB has done over the past two years.

"But the orientation of other policies also influences the speed with which output returns to potential. So if other policies are not aligned with monetary policy, inflation risks returning to our objective at a slower pace."

(BusinessDesk)