The bank's concerned there's too much money around for companies and consumers to spend.

The ECB, in a well-choreographed move, lifted its key interest rate to 3.5% from 3.25%.

The central bankers in Frankfurt, who unlike their Federal Reserve counterparts are keen watchers of money supply, are acting as the money supply is rising at an 8.5% rate.

The ECB, which sets rates for countries that use the euro as their currency, favors growth closer to 4.5%. With money supply on the rise, the ECB is acting even as annualized inflation at 1.8% is below its target of near 2%.

The central bank has room to act due to the strong European growth.

Polls of business confidence support that notion. A combined measure of manager sentiment in the European manufacturing and services sectors rose to 57.6 in November from 57.3 in October, according to NTC Research. Any number above 50 indicates economic expansion.

That poll also showed that employment is growing at the fastest pace in five months, which is crucial to consumer confidence, as the German unemployment rate stands above 10% and France's is just below 9%.

Traders will be looking for new forecasts on inflation and economic growth that could come out.

"The meeting today could, in our opinion, be one of the most important of the year, for the ECB will also publish its updated projections for growth and inflation which will shape expectations for monetary policy next year," said Kenneth Broux, an economist for Lloyds TSB Financial Markets.

The ECB has previously forecast 2007 growth between 1.6% and 2.6%, with inflation between 1.9% and 2.9%.

Comments on the strength of the euro and next year's value-added tax hike in Germany also will be scrutinized at the post-decision press conference, due to start at 8:30 a.m. Eastern.

ECB President Jean-Claude Trichet hasn't shown much concern with the euro's appreciation -- so far at least. The head of the Dutch central bank, Nout Wellink, also hasn't been too concerned.

"We've had a pretty good rally and have seen new highs, so we may need to catch our breath today," said Steve Goldman, chief market strategist at Weeden & Co.

The Dow Jones Industrial Average dropped 22 points to close at 12,309.

General Motors Corp. weighed on the blue-chip average, losing 2.5%, after Fitch Ratings said the auto industry is headed for a "turbulent" 2007.

Dow-component Merck, also weighed, falling nearly 1% after the drug maker reaffirmed its flattish earnings forecasts for 2006 and slightly higher earnings for 2007.

The S&P 500 dropped nearly 2 points to 1,412 and the Nasdaq Composite lost over 6 points to 2,445.

Shares of Yahoo Inc. fell 2.1%. Late Tuesday the internet portal announced the departures of Chief Operating Officer Dan Rosensweig and Lloyd Braun, who heads the media group, overseeing content. See full story.

The shake-up follows growing concern about the direction of the Sunnyvale, Calif.-based company over the past two years, which have seen Yahoo fall further behind Google Inc.

The banking sector was also weighing after HSBC Holdings Plc said that revenue growth has slowed due to reduced lending and mentioned that loan delinquencies have increased in the U.S. See full story. HSBC shares fell nearly 1%.

Trading volume was 1.5 billion shares on the New York Stock Exchange and 1.9 billion on the Nasdaq.

Decliners beat advancers 19 to 15 on the Big Board and 16 to 13 the Nasdaq.

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The futures contract for the Dow Jones Industrial Average last was down 18 points at 12,330.

Futures contracts for the S&P 500 and the Nasdaq 100 were 2.40 points lower at 1,414.30 and 6 points off at 1,802.

On Tuesday stocks posted strong gains after new data showed a pleasing combination of services sector growth and weaker-than-expected inflation.

Investors are likely to step back and assess the recent vigorous rally when the market opens on Tuesday.

"We've had a pretty good rally and have seen new highs, so we may need to catch our breath today," said Steve Goldman, chief market strategist at Weeden & Co.

There was scant reaction to the latest ADP data which measures private employment. The report showed that 158,000 new jobs were created last month, marking the largest gain since June. 

Together with an estimated 15,000 government jobs that aren't included in the ADP index, the report suggests non-farm payrolls likely grew by about 170,000 in November.

The report arrived ahead of Friday's much-awaited monthly unemployment report. The MarketWatch forecast, based on a survey of economists, is that the report that just 110,000 new jobs were created last month. But the ADP report suggests that figure is too conservative.

MarketWatch also is forecasting that the jobless rate will rise a bit to 4.5% from 4.4%.

Wage inflation is expected to decline to a 0.3% rate of increase from 0.4% in October, a development that would please the market because it would take some of the pressure of the Federal Reserve to lift rates.

Data suggesting the labor market may have been stronger-than-expected in November limited the downside.

S&P 500 futures slipped 2.70 points to 1,414.00 and Nasdaq 100 futures lost 6.00 points to 1,802.00. Dow industrial futures shed 15 points to 12,333.

On Tuesday, the Dow industrials advanced 47 points -- closing 11 points shy of an all-time high -- the Nasdaq Composite rose nearly 4 points and the S&P 500 ended 5.6 points higher at a 6-year high. Data showing services sector growth and weaker-than-expected inflation lifted stocks.

Private employers in the U.S. created 158,000 new jobs in November, according to the ADP employment index, the largest gain since June. Including an estimated 15,000 government jobs that aren't included in the ADP index, the report suggests nonfarm payrolls likely grew by about 170,000 in November.

Economists surveyed by MarketWatch expect the Labor Department to report on Friday a gain of 110,000 nonfarm jobs.

The U.S. dollar rose following the release of the ADP index. The euro was down 0.4% at $1.3263 and the buck added 0.1% vs. the yen to 115.07.

Investors are also likely to focus on weekly energy supplies data. Crude futures were down 27 cents at $62.16 a barrel in electronic trading ahead of those figures, due out around 10:30 a.m. Eastern (S'pore 2330hrs).

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