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Stucks Tumble on Bernanke Warning

Stocks pared losses after Federal Reserve Chairman Ben Bernanke issued a dour forecast, rebounding somewhat when the central bank leader said the institution was committed to helping the moribund economy.

Stocks were lagging under the weight of troubles in the financial sector, and the central bank leader's initial comments only aggravated a general feeling of hard times ahead for both financial markets and an economy Bernanke said was confronted with "numerous difficulties.".

Major indexes each dropped more than as investors continued to dump shares of big banks. The Dow Jones Industrial Average fell below 11,000 for the first time since July 21, 2006.

The big early losers on the financial side were National City and Wachovia.

The market was otherwise waiting for a busy day in which large companies were reporting earnings, General Motors announced an ambitious restructuring program, and Wall Street awaited remarks from Federal Reserve Chairman Ben Bernanke.

The Fed's semi-annual report on monetary policy outlook is likely to be dominated by talk of the ongoing market turmoil when Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox testify at 10 am New York time.

"He's going to be walking the tight rope, trying to make sure that he says that he's going to support the economy, but without weakening the dollar," Bill Stone, chief investment strategist at PNC Wealth Management, told "Worldwide Exchange."

Meanwhile, the Fed and Treasury's plan to bail out mortgage financing firms Fannie Mae and Freddie Mac came under scrutiny after initially being greeted with enthusiasm. Investor Jim Rogers, CEO of Rogers Holdings, told CNBC the move would be too much of a drain on public debt to justify the rescue.

Dow mortgage finance companies fell more than 19 percent in morning trading.

Shares also were indicating lower for other big names in the financial sector, with Citigroup and Bank of America each showing lower.

Insurer American International Group fell the most among Dow components following a downgrade from Wachovia Capital Markets over concerns that AIG will languish over credit exposure. Insurers were down 9 percent on the broader market.

In corporate news, General Motors announced a slew of measures aimed at cutting costs and raising capital by $15 billion.

In economic news, producer prices rose a far larger-than-expected 1.8 percent in June as energy costs soared, but core inflation at the producer level edged up just 0.2 percent, Labor Department data showed on Tuesday. May's business inventories data is due out at 10 am.

Another Fed member taking to the stage is San Francisco's Janet Yellen, who will speak on the impact of foreclosures from Hollywood.

Market watchers also will be looking at the Chicagor Board Options Exchange's Volatility Index , which measures market fear. Spikes in the Vix to the 35 range generally indicate an oncoming market bottoming, and the measure climbed over 30 and neared territory suggesting a bottom.

In earnings, Johnson & Johnson helped steady the market slide by reporting better-than-expected earnings. The company led a small handful of gainers on the Dow.

Financial services companies US Bancorp reported a larger-than-expected quarterly loss wjhile State Street surprised to the upside.