Stocks struggled to hold gains Tuesday as bank stocks rallied but comments from Bernanke hung over the market like a cloud.
Federal Reserve Chairman Ben Bernanke said late Monday that high energy prices risk increasing overall inflation but that the central bank would "strongly resist" any tendency for an inflationary psychology to take hold. Many in the market took that as an indication the Fed could raise rates too cool prices.
The dollar rose and light, sweet crude tumbled nearly $3 to between $131 and $132 a barrel.
All three major indexes -- Dow Jones Industrial Average, S&P 500 Index and Nasdaq -- wobbled after a brief stroll into positive territory. The tech-heavy Nasdaq, hower, trailed the other two as investors worried inflation could clamp down on tech firms' competitive advantage overseas.
Coca-Cola was the top gainer on the Dow after Deutsche Bank upgraded its rating on the stock, which is seen as a good defensive play in a tough economy.
The top two decliners on the Dow were Chevron and ExxonMobil .
Financials rebounded after the Bank Index (BKX) hit a five-year low on Monday.
Washintgon Mutual was up 10 percent after sliding 17 percent on Monday to their lowest price in 16 years amid projections that the nation's largest savings and loan could see its write-downs hit $27 billion by 2011 due to the impact of mortgage-related holdings.
National City shares also jumped on news the Midwest bank chain has reached an agreement with regulators on its ability to manage capital, risk and liquidity.
Lehman Brothers , however, skidded more than 6 percent to a five-year low amid continued concerns about the firm's stability. A slew of brokerage firms downgraded their ratings on Lehman stock and lowered price and earnings targets.
"I think we put in a double bottom on the financial crisis," Art Cashin, floor manager for UBS, told CNBC. But, "later, we’re going to roll over and make -– or break to -– a new bottom on the recession."
"Suddenly out of a calm sky, the sky is filled with hawks. They seem to be attacking the market," Cashin said, referencing the Hitchcock classic, "The Birds." "The hawks are everywhere and I can't find a telephone booth to hide in!" Cashin said.
Apple rebounded after taking a beating in the prior session amid profit-taking following the release of the new iPhone. Shares of Apple had jumped 50 percent in the last three months.
Citigroup raised its price target on Apple to $287 from $248 with a "buy" rating, and Lehman raised it to $234 from $202, maintaining its overweight rating.
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AT&T, meanwhile, skidded after the company, which is the exclusive wireless provider for the iPhone, said Monday during a call with analysts that subsidizing the new model will take a huge bite out of its profits.
Texas Instruments shares slipped after the chip maker narrowed the range of its earnings and revenue forecast due to customer caution and weak demand for high-end phones.
In economic news, the trade gap expanded to $60.90 billionin April from a downwardly revised $56.49 billion in March as oil prices surged. Economists had expected the gauge to rise to $59.90 billion. Average prices for imported oil rose $6.96 a barrel, the second highest increase on record.
A survey from the National Federation of Independent Businessshowed small-business confidence is at its lowest rate since 1980.
TUESDAY: Bernanke speaks
WEDNESDAY: Mortgage applications; crude inventories; Fed's beige book; Treasury budget; Fed's Kohn, Bullard speak
THURSDAY: Import/export prices; retail and food sales; jobless claims; business inventories; natural-gas inventories
FRIDAY: CPI, consumer sentiment
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