Stocks Slide As Crude Supply Shrinks

Stocks declined, following a two-day rally, as a report showed crude inventories shrunk last week.

U.S. crude inventories declined by 5.9 million barrels last week, the EIA reported. Analysts had expected a more modest 1.8-million draw. Gasoline supplies rose unexpectedly.

Oil prices rebounded about $1 to $2 a barrel, after shedding more than $9 in the previous two sessions, after Iran test-fired nine missiles today, including some that are capable of reaching Israel. Investors are awaiting a report on U.S. crude inventories, due out at 10:35 a.m. ET.

The recovery in oil prices juiced energy stocks but dragged on the airlines.

Wall Street is still looking for a bottom and volatility will remain high while this is taking place, analysts told CNBC.com.

Asian stocks closed slightly higher after paring gains following a report that Iran tested missiles capable of reaching Israel, while European stocks recovered, with miners up after Alcoa's better-than-expected results.

Alcoa was the top gainer on the Dow.

Alcoa reported after the bell Monday that it earned 66 cents a share on sales of $7.62 billion in the second quarter, down from a profit of 81 cents a share on revenue of $8.066 billion last year.

But the results topped expectations of 64 cents a share and $7.358 billion in sales, according to a consensus estimate from Thomson Reuters.

The report was an encouraging start to what is expected to be a challenging second-quarter earnings season but concerns lingered.

"I don't think that one earnings report such as Alcoa is going to turn things around," Ben Lichtenstein from Tradersaudio.com said on CNBC's "Worldwide Exchange."

""I think the market needs to flush out a little bit to the downside right now," he added, saying that better growth and jobs figures would help the market shake off its gloomy mood.

Retail chain Steve & Barry's is expected to file for Chapter 11 bankruptcy as early as this week, the Wall Street Journal reported on its website on Tuesday.

But in the sector as a whole, retailers, led by the discounters, are expected to post slightly better June same-store sales this week, due to seasonal weather and tax rebate checks.

The high price of fuel grounded another airline, with ExpressJet Holdings , the parent of ExpressJet Airlines, saying it would suspend branded commercial operations as of Sept. 2.

Still to Come:

WEDNESDAY: Crude-inventories report
THURSDAY: Monthly retail sales; jobless claims; Fed's Yellon speaks; Marriott earnings; Chevron interim report
FRIDAY: Import/export prices; international trade; consumer sentiment; Treasury budget; GE earnings; Apple's iPod 3G hits store shelves

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