Stocks closed lower after the chairman of the Federal Reserve said the housing slump is likely act as a drag on to U.S. economic growth, sparking investor concerns.
"It was just last month Bernanke was saying things were contained, but now he's saying housing troubles can spread," said Brian Hicks, president of Wealth Daily, an investment newsletter. "This-flip flop in the last month has really spooked the markets."
"It seems that there are more bodies that will float to the surface and the market is waiting to see what will happen," he added.
Fed Chairman Benjamin Bernanke left his options open on future action on ratessaying a full recovery in markets will take time.
"We had a straight up run in the markets from the time the Fed starts easing which was really August," said Benjamin Pace, equity strategist at Lehman Brothers Private Investment Management. "We're being reminded of why the Fed had to ease."
Rising crude oil prices also added to negative sentiment, while financial stocks remained pressured by lackluster earnings reports.
"Earnings are going to be bad, but looking forward I don't see a recession in the cards and corporate earnngs are going to do fairly well starting in 2008," said Jeremy Siegel, professor of finance at the University of Pennsylvania.
The Dow Jones Industrial Average fell about 80 points, or 0.6%, following a triple-digit loss in Monday's session. The broader S&P 500 and the Nasdaq Composite were also seeing similar declines.