Stocks clawed back from their worst levels but still closed in the red Wednesday, dragged by the defensive sectors such as consumer staples and utilities, as investors questioned when the Federal Reserve would start winding down its stimulus program.
(Read More: After-Hours Buzz: Alcoa, Priceline, Avago & More)
"While we expect the S&P to be range bound between 1,600 and 1,700 you can expect more days like the last two," wrote Elliot Spar, market strategist at Stifel Nicolaus, referring to the market gyration over the last two sessions. "Longs are nervous, they don't want to give up too much of their gains while those that missed the boat or are short, try to get on board. If you are not nimble in this range it is very easy to get whipsawed."
(Read More: Dow 28,000 Possible in 6 Years: BlackRock's Fink)
The Dow Jones Industrial Average declined 106.59 points, to end at 15,302.80, dragged by Verizon and Coca-Cola, suffering its worst one-day loss in nearly four weeks and wiping out most of its gains from the previous session.
Still, the blue-chip index recovered from being down nearly 200 points earlier in the session.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, gained near 15.
Most key S&P sectors ended lower, with defensive sectors utilities and consumer staples among the worst performers.
"The market was at overbought levels and you can see these short-term pullbacks in the market, but as far as an extended correction in the market, we're not expecting that going forward," said Paul Hickey, co-founder of Bespoke Group. "We'd recommend that people scale in here and buy some cyclical names—financials are holding in well and with the yield curve widening out here, that's positive for the [sector]."
Major averages rallied on Tuesday, lifted by a pair of better-than-expected economic reports and supportive comments from central banks around the world. Traders will continue to closely track economic data for signs that momentum is picking up, which would make it more likely that the Fed would curtail or stop its bond buying.
While there were no major economic data reports scheduled Wednesday, investors will be looking ahead to Thursday's weekly jobless claims and first quarter GDP reports.
(Read More: On Second Thought, Maybe Tapering Won't Be So Bad)
In its latest economic outlook, the OECD said the United States would drive global growth, projecting an expansion in GDP of 1.9 percent in 2013 and 2.8 percent in 2014. But the OECD also cuts its global growth forecast for this year to 3.1 percent from 3.4 percent previously.
Sallie Mae gained after the student loan provider said it would split into two publicly traded companies and named Chief Operating Officer John Remondi as its new chief executive.
And among earnings, Chico's tumbled after the women's apparel retailer reported weaker-than-expected quarterly results, hurt by an unusually cooler spring and increased promotions.
Meanwhile, Michael Kors rallied after the accessories maker reported better-than-expected earnings.
On the economic front, mortgage rates jumped to their highest level in a year last week, drying up demand for home refinancings, amid worries the Federal Reserve may begin to slow its stimulus efforts, according to the Mortgage Bankers Association.
Treasury prices added to their gains after the government sold $35 billion in 5-year notes at a high yield of 1.045 percent. The bid-to-cover, an indicator of demand, was 2.79.
(Read More: The 'Great Rotation'—Is It Finally Happening?)
Meanwhile, U.S. prosecutors filed an indictment against the operators of digital currency exchange Liberty Reserve, accusing the Costa Rica-based company of helping criminals around the world launder more than $6 billion in criminal proceeds.
The indictment came after the Treasury Department warned in March that digital currency exchanges need to follow traditional anti-money-laundering rules. And earlier this month, the Department of Homeland Security froze a subsidiary of Tokyo-based exchange Mt. Gox that handles most of the trading in the fledgling virtual currency Bitcoin.
—By CNBC's JeeYeon Park. Follow JeeYeon on Twitter:
Coming Up This Week:
THURSDAY: GDP, jobless claims, corporate profits, pending home sales index, natural gas inventories, oil inventories, 7-yr note auction, Fed balance sheet/money supply; Earnings from Costco, Joy Global, Lions Gate Ent.
FRIDAY: Personal income & outlays, Chicago PMI, consumer sentiment, farm prices, OPEC mtg
More From CNBC.com: