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Stocks finish sharply lower as AIG weighs on financials; Twitter hit

U.S. stocks declined sharply on Tuesday, a day after the Dow industrials and S&P 500 closed near record highs, as American International Group reported a decline in profit and Twitter fell as insiders got their first opportunity to sell since the company's initial public offering.

"We've had an earnings season that's been better than expectations, but not strong enough to get investors terribly excited about the future, and we may be seeing a little hint of a risk-off trade with nervousness over this Ukrainian story, although it doesn't affect the ability of U.S. companies to make money," said Jerry Webman, chief economist at Oppenheimer Funds.

"Good money can be made in a fairly valued market, but to go higher we're going to need some confirmation on earnings and expected earnings," Webman added.

"The primary reason we're down today is we're at all-time highs. If you don't continue to rally, people just start to take profits," said JJ Kinahan, chief strategist for TD Ameritrade.

Shares of AIG fell a day after the insurer posted a 27 percent drop in quarterly profit. Office Depot surged after the retailer hiked its full-year forecast and said it would close at least 400 stores in the United States over the next two years. Twitter tumbled as nearly 500 million shares of the social media stock from company insiders were poised to hit the market as a lock-up period expires.

"It's one of those occasions where you need to see the pace of growth pick up, and right at this point I don't know where it is coming from. It's hard to be bearish, but it's difficult to be bullish at all-time highs; I'd probably be more inclined to put money on the down side rather than on new highs, at least for the next few weeks," said Andrew Wilkinson, chief market analyst at Interactive Brokers.

"There is a tendency to hit these records and then bounce from them," said Webman.

The U.S. trade deficit shrank in March as exports increased, with the gap narrowing to $40.4 billion from $41.9 billion in February, the Commerce Department reported. After the trade data, JPMorgan took its tracking estimate of real GDP growth in the first quarter down to negative 0.8 percent from negative 0.4 percent.

"Exports in the first quarter were particularly weak, but that's on paper. It doesn't really tell you anything about the underlying health of the economy, as that was when transport was frozen, you couldn't build a house or go to the store. Most of the data points now are telling us the economy is reasonably healthy," said Wilkinson.

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The Dow Jones Industrial Average fell 129.53 points, or 0.8 percent, to 16,401.02, with Merck & Co leading blue-chip declines and all but three of 30 components in the red.

Bayer on Tuesday said it would buy Merck's consumer business for $14.2 billion in cash, the latest deal in a spree of activity in the pharmaceutical space.

The S&P 500 dropped 16.94 points, or 0.9 percent, to 1,867.72, with financials hardest hit and energy faring best among its 10 major industry groups.

The Nasdaq shed 57.30 points, or 1.4 percent, to 4,080.76.

After rising to a session high of $604, shares of Apple slid, a day after closing above the $600 level for the first time since October 2012.

"The VIX tells us there is not that great a reason to be concerned. Even if the VIX rallied 10 percent today it would still be under 15," said Kinahan of the CBOE Volatility Index, one measure of investor uncertainty, which rose 3.8 percent to 13.80.

"One day does not make a trend," said Kinahan, who downplayed the notion that investors were selling equities in a panic.

For every share rising, more than two fell on the New York Stock Exchange, where nearly 700 million shares traded. Composite volume approached 3.3 billion.

The 10-year Treasury yield used in figuring mortgage rates and other consumer loans fell 1 basis point to 2.595 percent.

The dollar fell against the currencies of major U.S. trading partners, especially the euro, which rose on data showing a strong European service sector.

"While Germany is still the undisputed locomotive, the real news today lies with the robust reports from Italy and Spain," offered Marc Chandler, global head of currency strategy at Brown Brothers Harriman, referring to better-than-expected reads on the service industries in both countries.

Read MoreWill Yellen take take the chill off the dollar?

Crude gained 2 cents to $99.50 a barrel; gold futures lost 70 cents to to $1,308.60 an ounce.

On Monday, stocks climbed as growth in U.S. service industries countered worry over tension in Ukraine and growth in China.

Read MoreDow rebounds from triple-digit slide on report on services sector.

Factset Symbol Name Value
MKT.CVOL-BATY BATY Composite Volume 1829900000
MKT.CVOL-BATS BATS Composite Volume 200000
MKT.CVOL-CBO CBOE Composite Volume 805500000
MKT.CVOL-CHI CHICAGO Composite Volume 440700000
MKT.CVOL-EDGX EDGX Composite Volume 1834400000
MKT.CVOL-EDGA EDGA Composite Volume 1827200000
MKT.CVOL-ADF FINRA Composite Volume 1837000000
MKT.CVOL-BOS NASDAQ OMX BX 1826100000
MKT.CVOL-PHL NASDAQ OMX PSX 1774200000
MKT.CVOL-CIS NATIONAL Composite Volume 1756100000
MKT.CVOL-NYS NYSE Composite Volume 3297400000
MKT.CVOL-ASE MYSE MKT Composite Volume 86100000
MKT.CVOL-PSE NYSE ARCA Composite Volume 700700000
MKT.CVOL-NAS NASDAQ Composite Volume 1862400000
MKT.CVOL-OTC OTC BB Composit Volume 341600000
Total 20219500000

—By CNBC's Kate Gibson

Coming Up This Week:

Tuesday

7:00 p.m.: Fed Gov. Jeremy Stein

Wednesday

Earnings: A-B InBev, Softbank, Mondelez International, Tesla,Siemens,Chesapeake Energy , Allergan, Duke Energy, Hertz Global,Devon Energy, ING Group, Tim Hortons, Keuring Green Moutain,AOL,Sotheby's, Prudential Financial, Transocean, Molson Coors, Solar City, Zillow, Sprout's Farmers Market

8:30 a.m. Productivity and costs

10:00 a.m.: Fed Chair Janet Yellen testifies before Joint Economic Committee on economy

3:00 p.m.: Consumer credit

Thursday

Earnings: Priceline.com, Toyota, AMC Networks, Regeneron Pharma, Scripps, Wendy's, Monster Beverage, News Corp, CBS, Rocket Fuel, Shutterstock, Dish Networks, Liberty Media, Dean Foods, Precision Castparts, Symantec, Nvidia, Intercontinental Exchange, Apache

8:00 a.m.: Chicago Fed President Charles Evans at Chicago Fed conference

8:30 a.m.: Weekly jobless claims

9:30 a.m.: Fed Gov. Daniel Tarullo at Chicago Fed conference

9:30 a.m.: Fed Chair Yellen testifies before Senate Budget Committee oneconomic outlook

2:00 p.m.: St. Louis Fed President James Bullard at 2 p.m. in St. Louis

Friday

10:00 a.m.: Wholesale Trade

10:00 a.m.: JOLTs

07:10 p.m.: Minneapois Fed President Narayana Kocherlakota

Earnings: Ralph Lauren, ArcelorMittal, Telefonica, Petrobras, Echostar, Liberty Interactive, Alcatel-Lucent

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