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Stocks Log 3-Day Decline on 'Cliff' Fears; RIM Soars 11%

Stocks eased off their lows but still finished in the red Wednesday, extending losses for a third-straight session, as weakness in the retail sector and ongoing worries over the looming "fiscal cliff" put a damper on gains.

"There's just no certainty and people don't know where to step," said Stephen Guilfoyle of Meridian Equity Partners. "We're kind of in a quandary here—the market didn't catch at 1,422 like it was supposed to and the next catch point is 1,415 on the S&P. There's not a lot of volume and you have a lot of traders with question marks on their heads right now."

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The Dow Jones Industrial Average fell for a third session, declining 24.49 points, or 0.19 percent, to close at 13,114.59, dragged by UnitedHealth. Bank of America led the blue-chip gainers.

The S&P 500 slid 6.83 points, or 0.48 percent, to finish at 1,419.83. The Nasdaq dropped 22.44 points, or 0.74 percent, to end at 2,990.16. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, gained to close above 19.

Most key S&P sectors finished in negative territory, led by consumer discretionary, while materials gained.

Obama will return to Washington early on Thursday, according to the White House, to deal with the deadlocked talks between Democrats and Republicans on what to do with $600 billion in tax increases and automatic spending cuts, due to kick in on Jan. 1.

"I don't think the President is coming back from Hawaii without anticipating we're getting something done so I'm optimistic and the Street is somewhat optimistic too," said Gordon Charlop of Rosenblatt Securities. "You don't get a sense that they're selling into the pessimism that people are trying to circulate about the fiscal cliff not being resolved." (Read More: Over the Fiscal Cliff: What Kind of Landing? )

Wall Street has been increasingly worried that the two sides may not reach a deal in time. Art Cashin, director of floor operations for UBS, said such an outcome would result in a 95 percent chance of a U.S. recession next year.

However, volume is expected to remain throughout the shortened-holiday trading week with many traders still on vacation and with major European markets closed for the day for Boxing Day. In Asia, markets closed higher on thin volumes, with Japanese stocks rallying to hit nine-month highs on a weaker yen.

Worries over the fiscal cliff and an extremely weak report on the holiday shopping season put major retail stocks including Macy's, Wal-Mart and Target under pressure. Coach, Abercrombie & Fitch and Ralph Lauren were also sharply lower. (Read More: Nervous Retailers Hope for Post-Christmas Rush )

Sales in the two months before Christmas rose just 0.7 compared to last year, the slowest rate of growth since 2008, according to the MasterCard Advisors Spending Pulse. Analysts had been expecting growth of 3 to 4 percent.

Amazon.com was lower after Netflix said an outage at an Amazon web service center impacted subscribers in the U.S., Canada, and Latin America on Christmas eve. Service was fully restored by Christmas day.

Meanwhile, Apple weighed on the tech sector and the Nasdaq 100 index, slipping more than 1 percent.

Research In Motion soared to lead the Nasdaq 100 gainers as pictures of what is believed to be the newest BlackBerry device with a physical keyboard made rounds on the Internet. The BlackBerry 10 launch event is expected to take place on January 30.

Marvell Technology plunged more than 10 percent after a federal jury ordered the semiconductor company to pay $1.2 billion in damages in a patent infringement lawsuit against Carnegie Mellon University.

Herbalife rallied, snapping a nine-day losing streak, after the nutrition and skin-care products company retained a legal firm to help defend itself against attacks by hedge fund manager Bill Ackman, according to the Wall Street Journal. Last week, Ackman shorted the Herbalife's stock and accused the company of operating a pyramid scheme.

On the economic front, the S&P/Case Shiller home price index of 20 major cities rose 0.7 percent in October on a seasonally adjusted basis, topping expectations for a gain of 0.5 percent. And prices in the 20 cities jumped 4.3 percent from last year, beating forecasts for an increase of 4.0 percent.

Meanwhile, the Federal Reserve Bank of Richmond said manufacturers in the central Atlantic region posted modest activity in December, but at a slower pace than in November.

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

THURSDAY: Jobless claims, new home sales, consumer confidence, oil inventories, Kansas City Fed survey, Fed balance sheet, money supply
FRIDAY: Chicago PMI, pending home sales, natural gas inventories

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