Stocks slipped Wednesday after a senior Fed member said policy makers should start raising rates to 1 percent soon.
Stocks had been lower for much of the day but pared some of their losses after the 10-year Treasury auction was met with strong demand.
Telecom and energy stocks were among the weakest performers, while technology and financials were among the best.
The Dowwas down almost 30 points in midafternoon trading, led by Verizon , American Express and Alcoa .
Bank of America , Cisco and Pfizer were among the top Dow gainers.
Kansas City Fed President Thomas Hoenig, who has been the lone dissenter in policy meetings, delivered some strong words in a speech today, saying the Fed should start raising rates to 1 percent soon, lest it cultivate a bubble.
"The time is right to put the market on notice that it must again manage its risk, be accountable for its actions, and cease its reliance on assurances that the Federal Reserve, not they, will manage the risks they must deal with in a market economy," Hoenig said.
Hoenig added that even 1 percent is still accommodative.
This came after Fed Chairman Ben Bernanke said earlier that the Fed is in no rush to raise interest rates as the economy still faces headwinds, and as NY Fed President William Dudley said the Fed's top priority has to be the ongoing economic recovery and that he supports keeping the "extended period" language.
After steadily marching higher for the past five weeks, with major indexes reaching their highest levels in a year and a half and the Dow coming within shooting distance of 11,000, stocks have eased in the past few sessions. The Dow ended lower Tuesday, with weakness in retail and homebuilder stocks.
The markets seem to be a bit ahead of itself and we may have already seen "half the gain" we'll see all year, said Steve Neimeth, portfolio manager at SunAmerica Asset Management.
Banks got a boost as Goldman raised its outlook on several regional banks, including KeyCorp , which it upgraded to "buy" from "neutral."
Rochdale Securities analyst Dick Bove said he likes long buys in Citigroup , Goldman Sachs and Bank of New York . But he said bank earnings will disappointthis quarter and he's more inclined to make short-term plays in the sector — and play them in pairs.
Techs showed pockets of strength, with Micron Technology up more than 1 percent.
Palm surged amid speculation that the smartphone maker may be a takeover target, according to a report from Bloomberg.
Treasury prices pushed higher after the latest 10-year auction. The $21 billion sale fetched a high yield of 3.90 percent and the bid-to-cover ratio was 3.72.
Based on the demand from today's Treasury auction, expect strong results from tomorrow's 30-year auction, said Neimeth.
"Overall, the equity investor seems to see the strong Treasury auction as an endorsement that the U.S. economy is staging a recovery," he said. "Global investors are likely to flock to U.S. fixed income and equity markets as a safe haven ahead of potential worsening conditions in the euro zone."
Oil fell toward $86 a barrelafter a report showed crude inventories rose by 2 million barrels last week. Gold priceshit a three-month peak near $1,150 an ounce and the dollar rose against the euro.
In today's economic news: Weekly mortgage applications ticked up just 0.2 percentas a spike in mortgage rates clipped demand for refinancing.
Twenty-nine percent of CEOs in the U.S. said they are ready to add domestic jobs over the next six months, according to a Business Roundtable survey. This is the first time since early 2008 that more leaders anticipate adding jobs than cutting them.
This came after CA announced it would cut 1,000 jobs on Tuesday. The business software maker’s shares fell for a second day Wednesday.
And still to come: The February reading on consumer credit is due out at 3pm ET. The number is expected to drop by $1 billion after a rise of $5 billion in January.
A few earnings reports to note:
Family Dollar shares jumped over 3 percent after the dollar-store chain beat earnings expectations and said it expects same-store sales to be up 6 to 8 percent in the current quarter.
And Monsanto fell after the agricultural-products maker missed its earnings target, citing competitive pressures.
After the bell today, results are due out from home-goods retailer Bed Bath & Beyond .
Alcoa is scheduled to report earnings next Monday, marking the unofficial start to earnings season.
Expect a strong earnings season in the upcoming quarter, said Neimeth. He expects to see a recovery "for two more quarters." However, the wild card will be in the fourth quarter, he warned. Earnings gains and GDP growth will slow down by then and investors may have a "more tempered economic outlook."
On the M&A front, Renault, Nissan and Daimler officially announced their deal to swap stakes and jointly develop small cars and engines.
CKE Restaurants shares jumped on word that it has received another offer from an undisclosed bidder, possibly leading to a potential bidding war for the fast food giant. CKE previously agreed to a $619 million deal with private equity firm Thomas H. Lee Partners in February.
And Australia's Macarthur Coalrejected a $3.27 billion takeover bid from U.S. coal miner Peabody Energy , with analysts saying Peabody will likely have to raise that bid by about 10% to be successful.
Still to Come:
WEDNESDAY: Consumer credit; Earnings from Bed, Bath & Beyond after the bell
THURSDAY: BOE, ECB announcements; weekly jobless claims; Fed's Kocherlakota speaks; 30-year auction; Earnings from Pier 1, Chevron (interim results)
FRIDAY: Wholesale trade
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