By Caroline Valetkevitch
NEW YORK (Reuters) - U.S. stocks fell on Tuesday, with financials, transports and other big post-election gainers losing ground as earnings season kicked into gear.
Also weighing on stocks were concerns about protectionist trade policies by U.S. President-elect Donald Trump, which pushed the dollar the dollar to its lowest level in more than a month and bond yields down as investors cut risk.
The S&P 500 financial index (.SPSY), which has rallied since the election on expectations of higher interest rates and reduced regulation under Trump, had its worst day since June 27 and led sector losses. It fell 2.3 percent.
Morgan Stanley (MS.N) shares fell 3.8 percent even after its profit doubled in the fourth quarter. The bank's finance chief, Jonathan Pruzan, said Morgan Stanley will not increase its quarterly target for the business until it is clear that recent revenue trends were sustainable.
"We continue to see a rally in the 10-year bond, so as we see as that yield curve shift lower, that is a potential headwind for financials," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
"The flatter the yield curve, the less implicit net interest margin there is. How that plays out, I don't know if anybody knows ... but it's usually not a positive for the financials."
Biotech and pharma stocks declined after Trump said in a Washington Post interview he would target companies over drug pricing and that he was ready to unveil a plan to replace Obamacare. The Nasdaq biotech index (.NBI) was down 2 percent.
The Dow Jones Industrial Average (.DJI) was down 58.96 points, or 0.3 percent, to 19,826.77, the S&P 500 (.SPX) lost 6.75 points, or 0.3 percent, to 2,267.89 and the Nasdaq Composite (.IXIC) dropped 35.39 points, or 0.63 percent, to 5,538.73.
U.S. stocks have mostly surged since Trump's election on bets that he would usher in an era of economic growth through fiscal stimulus.
"You're getting some giveback to the areas that have really done well with the Trump election. Some of that is a feeling he's starting to take on a lot of targets," said Rick Meckler, president of LibertyView Capital Management.
Worries over Donald Trump's economic policies and the potential for U.S. policy errors rose sharply this month, according to a survey of fund managers.
Investors also awaited quarterly earnings to begin in full force, with other major banks due to report this week.
Transportation stocks including railroads, which mostly rose after the election, declined, with the Dow Transportation Average (.DJT) closing down 1.1 percent.
A 1.4-percent rise in consumer staples (.SPLRCS) offset some of the day's losses. Wal-Mart (WMT.N) rose 1.9 percent after the retailer said it would create 10,000 jobs in the United States this year.
The dollar index (.DXY) fell 0.8 percent after Trump told the Wall Street Journal that the strong currency was hurting competitiveness of U.S. companies.
About 6.7 billion shares changed hands on U.S. exchanges, above the 6.3 billion daily average for the past 20 trading days.
Declining issues outnumbered advancing ones on the NYSE by a 1.23-to-1 ratio; on Nasdaq, a 2.41-to-1 ratio favored decliners.
The S&P 500 posted 9 new 52-week highs and 1 new low; the Nasdaq recorded 57 new highs and 20 lows.
(Additional reporting by Yashaswini Swamynathan in Bengaluru and Sinead Carew in New York; Editing by Anil D'Silva and Nick Zieminski)