The Dow Jones industrial average, which rose almost 100 points near the open and held a gain of about 90 through much of the session, lost 4.61 points to close at 6,656.08 in what suddenly turned into its fifth straight losing session.
Advancers decliners by more than a 4-to-3 margin on the New York Stock Exchange, with 1,427 up, 1,055 down and 840 unchanged.
NYSE volume totaled 526.42 million shares vs. 435.55 million yesterday. The Standard & Poor's 500-stock list, up more than 11 points during the session, closed unchanged at 765.02.
The NYSE's composite index rose 0.08 to 402.86, the Nasdaq composite index rose 1.56 to 1,354.37, and the American Stock Exchange composite index rose 1.91 to 588.07.
Stocks drew an early boost from the bond market, where interest rates fell sharply after the Labor Department reported that employment costs rose 0.8 percent in the fourth quarter, meeting analyst forecasts.
With recent reports consistently exceeding forecasts, investors had been worried the Employment Cost Index would reveal a much sharper advance.
But bonds pulled back as nervous traders took profits.
In addition to the encouraging news on inflation, the Dow was boosted by healthy profit reports from Procter & Gamble, Merck, 3M, and Disney.
As bond prices rose this morning, the yield on the 30-year Treasury bond fell as low as 6.83 percent from late yesterday's 6.94 percent, which was its highest finish since late September. But as bonds retreated in the afternoon, the long-bond yield jumped back to 6.92 percent.
Despite the enthusiasm over this morning's report, analysts remain concerned that economic growth hasn't remained slow enough to keep a lid on the inflationary pressures that loomed through much of 1996. The fourth-quarter reading on employment costs brought the increase for all of 1996 to 2.9 percent, the biggest gain in two years.
And in a second report this morning, the Conference Board research group said consumer confidence has climbed to a seven-year high in January, outstripping analyst forecasts by a wide margin.
Federal Reserve policy makers are scheduled to meet Feb. 4 to determine if the central bank needs to raise lending rates to slow the economy as protection against inflation.
Rising inflation or interest rates hurts bonds by making their fixed payoff less attractive. Higher interest rates at the Fed or the bond market hurt stocks by slowing consumer spending and raising corporate borrowing costs.