Stocks see-sawed for much of the session before settling into the negative zone as oil prices surged to another record and investors were jittery ahead of tomorrow's jobs report.
Volume was thin as traders had already begun to filter out for the Fourth of July holiday. The stock market will close at 1pm ET tomorrow and the bond market at 2pm ET. All U.S. financial markets are closed Friday.
Stocks got an early bump from a report that showed factory orders rose 0.6 percent in May but sentiment was tarnished by oil's rise after an unexpected draw in crude inventories and a bleak ADP jobs report.
Oil prices wavered between $140 and $144 before settling near the high end of that range at $143.57 a barrel.
Private employers in June slashed 79,000 jobs from their payrolls, the largest drop in nearly six years, according to a report from ADP Employer Services. Economists had expected a more mild drop of 20,000 jobs. The May number was revised to show a 25,000-job gain, compared with the previously reported 40,000 increase.
The ADP report is closely watched ahead of the government's monthly payrolls report, due out on Thursday, one day earlier than usual due to the July 4 holiday.
"I am definitely looking for a decline in jobs … we are expecting a decline of about 60,000 jobs. I'm actually thinking it might be a little bit friendlier than what the market expects," Donna Heidkamp from RJO Futures told "Worldwide Exchange."
But some economists warned that, as auto makers dropped a batch of awful sales numberson the market on Tuesday, American workers may be in for more trouble ahead.
General Motors skidded 14 percent, making it the biggest drag on the Dow, after Merrill Lynch said the struggling auto maker is going to need to raise $15 billionto quash liquidity concerns and that a bankruptcy filing is "not impossible." The brokerage cut its rating on GM to "underperform" from "buy" and slashed its price target on the stock to $7. Shares were trading between $11 and $12.
Financials were mostly higher, building on the prior session's gains, when the sector ranked No. 1 among 10 key S&P sector indexes. Most regional bank stocks were up about 2 percent, while there were a few pockets of weakness in investment banks.
The sector got a boost from across the pond, when Deutsche Bank, and UBSsaid theywon't need to raise any more capital.
JPMorgan was the top gainer on the Dow.
Lehman Brothers jumped as reports suggest the firm plans to issue stock to its employees in order to retain some of its top talent amid rumors that short sellers are trying to take it down like Bear Stearns.
Merrill Lynch skidded after yet another analyst lowered her estimate.
Oppenheimer analyst Meredith Whitney slashed her second-quarter earnings estimate for Merrill to a loss of $4.21 a share and projected the bank would take $5.8 billion in writedownsfor the quarter. Whitney said she expects the firm to announce plans to raise capital along with its second-quarter report. She also blew out her full-year estimate to a loss of $5.37 a share from her prior estimate of 45 cents a share.
UBS projected Merrill's writedowns for the quarter at $4.5 billion and said Citigroup is likely to face a more severe $8.7 billion in writedowns.
Meanwhile, Microsoft is preparing a new bid for Yahoo's search business and has approached other media companies about joining it in a deal that would effectively lead to Yahoo's breakup, the Wall Street Journal reported.
Shares of UnitedHealth Group, which have fallen more than 50 percent this year, ticked higher the nation's largest health insurer slashed its full-year outlook and said it would pay more than $900 to settle options-related litigation.