Stocks closed lower following a zig-zag day marked by a plunge in oil and a barrage of statements and news from economic policy makers.
Only the tech barometer Nasdaq finished in positive territory during a day that featured a 228-point drop in the Dow, which went briefly positive before finishing in negative territory. Financial stocks brought down the blue-chip index as fears continued that the credit crisis was far from over.
The Dow closed below 11,000 for the first time since July 21, 2006.
Crude oil marked its largest single-day drop in 17 years, which sent energy shares lower but boosted the broader market on a day that shaped up as a disaster off the opening bell but which tempered as trading progressed.
Investors withstood a barrage of pessimism from key policy makers, including Federal Reserve Chairman Ben Bernanke who said the economy faces a stiff challenge ahead. Yet he said the banking system is well-capitalized and President Bush called financials "fundamentally sound."
Oil fell under $139 a barrel, a plunge that probably prevented a market selloff precipitated by pervading weakness in banks.
Financials sold off late, led by beleaugured mortgage giants Fannie Mae and Freddie Mac, which were not helped by an emergency order from Securities and Exchange Commission Chairman Christopher Cox that restricted naked short-selling on the two stocks.
Both Bank of America and Citigroup added to the carnage in financials.
Bargain hunters helped the market from falling more, picking up undervalued companies in financials and elsewhere.
Battered telecom SprintNextel also gained on a CNBC report that the company might be bought out by South Korea's SK Telecom.
"I think you have some good old-fashioned people coming in, thinking that it is oversold and trying to do bottom fishing," Matt Kaufler, portfolio manager and equity analyst at Clover Capital Management, Rochester, N.Y., told Reuters.
The market was ensconced a busy day in which large companies were reporting earnings and General Motors announced an ambitious restructuring program.
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, GM listed a slew of measures aimed at cutting costs and raising capital by $15 billion. The measures lifted the stock up more than 5 percent to lead Dow components.
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.
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 Chicago 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 before retreating.
In earnings, Johnson & Johnson helped steady the market slide by reporting better-than-expected earnings and was among the top Dow gainers.
Microsoft appeared to be getting rewarded for its hard-line negotiations to take over Yahoo , whose shares slipped along with other leading Internet companies.
Financial services companies US Bancorp reported a larger-than-expected quarterly loss while State Street surprised to the upside.