By Sue Chang and Ellie Ismailidou, MarketWatch

Dollar slumps against yen

U.S. stocks slumped Tuesday as the Federal Reserve began its two-day monetary policy. A sharp drop in McDonald's Corp. after disappointing earnings also weighed on sentiment.

The S&P 500 index edged down 4 point to 2,164. Materials were the best performers while telecom and utilities stocks were the biggest losers.

The Dow Jones Industrial Average fell 68 points, 0.4% to 18,419 as rallies by United Technologies Corp. (UTX) and Caterpillar Inc.(CAT) failed to offset McDonald's Corp.'s decline, which was cutting 40 points from the blue-chips gauge.

The Nasdaq Composite Index slipped 3 points, or less than 0.1%, to 5,094.

Investors were reluctant to place any significant bets ahead of the Federal Open Market Committee's interest rate decision on Wednesday, according to analysts. The central bank's meeting is its first gathering since the U.K. on June 23 voted to leave the European Union.

"No one on the street is looking for any movement by the Fed at this meeting," Bob Pavlik, chief market strategist at Boston Private Wealth LLC, said in emailed comments. "Any commentary referencing an improved operating environment will lead more to believe a September rate hike is looking more likely."

Read:What to expect in the Fed statement (http://www.marketwatch.com/story/what-to-expect-in-the-fed-statement-next-week-2016-07-22)

Meanwhile, investors shrugged off positive news from the housing market, where new home sales in June rose to a seven-year high (http://www.marketwatch.com/story/new-home-sales-power-ahead-rising-to-7-year-high-592000-annual-pace-2016-07-26)while the Case-Shiller home-price index also inched higher in May. Instead, the market was bracing for a deluge of earnings.

"Right now everyone is--rightfully or wrongfully--focusing completely on Fed policy and earnings," said Kent Engelke, chief economic strategist at Capitol Securities Management.

Though the central bank is expected to hold interest-rates steady, there are more risks to the downside stemming from the content of its policy statement, according to Engelke.

"If the Fed comes out more hawkishly and earnings disappoint, [the Dow] could plunge up to 1,000 points," Engelke said, adding that there is a lot of "nervousness" which has sparked some profit-taking.

Earnings:

McDonald's(MCD) slumped 4.3% after the world's largest fast-food restaurant chain missed earnings expectations (http://www.marketwatch.com/story/mcdonalds-shares-fall-after-revenue-same-store-sales-miss-expectations-2016-07-26).

Verizon Communications Inc. (VZ) fell 2% despite reporting second-quarter earnings that beat forecasts (http://www.marketwatch.com/story/verizon-q2-earnings-negatively-impacted-by-union-strike-but-above-expectations-2016-07-26). The company also announced its $4.83 billion deal on Monday to buy Yahoo Inc.'s (YHOO) assets for $4.83 billion in cash (http://www.marketwatch.com/story/verizon-agrees-to-48-billion-deal-to-buy-yahoo-2016-07-24), which is expected to close in the first quarter 2017.

DuPont(DD) gained 0.7% after the chemicals major reported earnings ahead of forecasts.

Under Armour Inc.(UA) sank more than 5% after the sportswear company said profit dropped in the second quarter (http://www.marketwatch.com/story/under-armour-earnings-fall-but-meet-expecations-2016-07-26).

United Technologies Corp.(UTX) rose 2.7% after reporting earnings and sales ahead of expectations and said its on track to meet its growth targets for 2020 (http://www.marketwatch.com/story/united-tech-profit-and-sales-beat-lifts-low-end-of-full-year-outlook-2016-07-26).

(http://www.marketwatch.com/story/apple-earnings-another-iphone-decline-stronger-software-revenue-expected-2016-07-22)Shares of Gilead Sciences Inc. (GILD) skidded 8.9% after the biotech firm late Monday said revenue from its hepatitis C drugs fell (http://www.marketwatch.com/story/gilead-shares-drop-as-drug-maker-cuts-product-sales-outlook-2016-07-25) in the second quarter.

After the market closes on Tuesday, Apple Inc.(AAPL), Twitter Inc.(TWTR) and Panera Bread Co.(PNRA) will report.

Read:Apple earnings: Another iPhone decline, stronger software revenue expected (http://www.marketwatch.com/story/apple-earnings-another-iphone-decline-stronger-software-revenue-expected-2016-07-22)

Economic news: The Markit PMI services index for July slowed to 50.9, a five-month low and down from 51.4 in June.

A measures consumer confidence (http://www.marketwatch.com/story/consumer-confidence-holds-steady-in-july-2016-07-26) from the Conference Board held steady in July, suggesting Americans are 'cautiously optimistic" that the U.S. economy will continue to grow.

Other markets: The dollar fell against most other major currencies and particularly took a dive against the yen (http://www.marketwatch.com/story/yen-surges-against-dollar-other-rivals-as-japan-stimulus-plan-falls-short-2016-07-26) ahead of the Bank of Japan meeting on Friday. Expectations that the central bank will launch more aggressive monetary easing have started to fade, sending the yen to its highest level against the greenback since mid-July.

Oil prices continued to lose ground, while gold was mostly flat, trading near $1,319.90 an ounce.

Asian stock markets mostly rose, although Japan closed lower (http://www.marketwatch.com/story/nikkei-falls-after-disappointing-report-on-stimulus-plan-2016-07-25). European markets (http://www.marketwatch.com/story/european-stocks-slip-as-investors-weigh-corporate-updates-central-bank-moves-2016-07-26) traded mixed.

--Sara Sjolin contributed to this article.

(END) Dow Jones Newswires

July 26, 2016 13:28 ET (17:28 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.