Nonlinear dynamics of steep waves in water of finite depth are analyzed. The most unstable Benjamin-Feir sidebands are found for a number of values of carrier wave steepness and water depth. The long-time evolution of a three-wave system, consisting of the carrier and the two most unstable sidebands, is then studied. Such a wave system undergoes periodic recurrence. It is shown that the slow-time modulation leads to a corresponding periodic variation in the radiation stress when the propagation directions of the sidebands differ from that of the carrier. The variation of the radiation stress, in turn, results in slow-time modulation of longshore current. ¿1991 American Geophysical Union