NEW YORK, July 26 ― US stocks backed off record highs and government bond yields ticked up yesterday following mixed earnings reports and rosier-than-expected economic sentiment from the European Central Bank.

The ECB signalled its intention to explore monetary easing but left interest rates unchanged, and bank President Mario Draghi struck a more upbeat tone on the economy than investors expected, sending US and European equities lower and boosting sovereign debt yields.

"Although he said things such as the outlook is getting worse and worse, they still see the sign of a recession risk as pretty low, so the market is interpreting this as somewhat hawkish,” said Jon Hill, an interest rate strategist at BMO Capital Markets in New York.

A mixed bag of earnings reports from a swath of US companies pulled Wall Street lower a day after the S&P 500 and the Nasdaq hit all-time highs, painting a picture of profit beats amid underwhelming guidance.

"The market's headed into the bulk of the earnings season near record highs and mixed reports have led the markets to the downside,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. "We're seeing the expected toll that trade and tariffs are taking on the companies.”

The protracted US-China trade war and a softening global economy should encourage the US Federal Reserve to cut interest rates next Wednesday for the first time in a decade.

But investors will be eyeing the Fed's statement at the conclusion of its two-day monetary policy meeting for clues as to what to expect going forward.

"The market is expecting more than a single cut (this year) and if the Fed implies that that's not a slam dunk it's going to have implications for the market,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

The Dow Jones Industrial Average fell 128.65 points, or 0.47 per cent, to 27,141.32, the S&P 500 lost 15.83 points, or 0.52 per cent, to 3,003.73 and the Nasdaq Composite dropped 82.96 points, or 1 per cent, to 8,238.54.

European stocks reversed their initial gains in reaction to the ECB's easing intentions after Draghi said the risk of a recession in the euro zone was "pretty low” and the central bank would wait for more data before "taking action.”

The pan-European STOXX 600 index declined 0.56 per cent and MSCI's gauge of stocks across the globe shed 0.51 per cent.

US Treasury yields rose following Draghi's remarks.

Benchmark 10-year notes fell 8/32 in price to yield 2.0758 per cent, compared with 2.05 per cent  late on Wednesday.

The 30-year bond fell 20/32 in price to yield 2.6061 per cent, compared with 2.578 per cent late on Wednesday.

The dollar index, which measures the greenback against a basket of other world currencies, inched higher, while the euro gave up earlier gains to show a nominal increase from Wednesday's two-month low.

The dollar index rose 0.09 per cent, with the euro up 0.04 per cent to US$1.1144.

The Japanese yen weakened 0.48 per cent versus the greenback at 108.72 per dollar, while sterling was last trading at US$1.2451, down 0.24 per cent on the day.

Oil prices climbed as Middle East tensions and a substantial drop in US crude stocks raised supply concerns.

US crude oil futures settled at US$56.02 per barrel, a 0.25 per cent gain, while Brent crude oil futures settled up 0.33 per cent at US$63.39 per barrel.

Spot gold dropped 0.8 per cent to US$1,414.27 an ounce.

Copper fell 0.23 per cent to US$5,985.50 a tonne.

Three-month aluminum on the London Metal Exchange rose 0.03% to US$1,826.50 a tonne. ― Reuters