Stocks extended losses as the closing bell neared, pulling back from last week's rally to two-year highs, as the dollar rose.
The Dow Jones Industrial Average was down more than 90 points after slipping in the previous session.
Bank of America and Kraft led the blue-chips lower, while Exxon Mobil and Microsoft rose.
The S&P 500 Index and the Nasdaq both declined. The CBOE Volatility Index, widely considered the best gauge of fear in the market, traded above 18.
Among key S&P sectors, financials, consumer discretionary stocks, and materials fell, while telecom and energy rose.
The dollar rose against a basket of currencies, as the euro fell over nervousness about high levels of sovereign debtin euro zone countries, including Ireland, Portugal and Span. That helped to push materials stocks lower. Stocks overall have been moving inversely to the dollar.
Gold, however, rose near $1,420 an ounce, climbing for the fourth straight session. And silver touched a 30-year high, rising almost 17 percent in the last week, before paring some gains. The Chicago Mercantile Exchange on Tuesday afternoon raised margin costs for silver.
"It's a way for the exchange to try to stop at some level speculation into the market," Rick Bensignor of Execution Noble said on CNBC.
Shares of gold miners such as Barrick Gold and AngloGoldAshanti climbed more than 3 percent, while materials stocks, Vulcan Materials ,Cliff's Natural Resources , and Newmont Mining sank.
Meanwhile, oil prices resumed gains to hit a fresh two-year high above $87 a barrel.
Monday's lackluster market activity was most likely a pause after stocks reached two-year highs last week. One technical reason for the pause could be that the S&P 500, which traded as high as 1,226 on Tuesday, was closing in on 1,228, which represents "a 2/3 retracement of the entire bear market dating back to fall 2007," according to Michael Sheldon, chief market strategist at RDM Financial Group.
Also, the Relative Strength Index for the S&P, an indicator of whether the market is overbought or oversold, is at 70, "which may indicate a pause or brief correction," Sheldon said.
Moreover, Sheldon thinks the market will continue to move higher.
"I think the impact of QE2 (quantitative easing) combined with the election last week and the somewhat better than expected employment data on Friday, have continued to provide a positive backdrop for equity markets," he said. "Heading into year-end, you could easily have investors pile into the market especially those who may be under invested or who have missed the majority of the recent rally off the summer lows."
On the M&A front, Yahoo jumped following a report it may be a takeout target. It's unclear whether the private equity investors were involved in a deal that AOL was said to be considering.
Atlas Energy soared more than 30 percent after news Chevron would buy the natural gas producerfor $4.3 billion, including debt, giving it a stake in the Marcellus shale fields.
And Sara Lee has agreed to sell its North American bakery business to Grupo Bimbo for $959 million. The food producer also reported weak profit for the quarter.
Financials were the worst performing sector for most of the day. Citigroup , Bank of America and JPMorgan fell after news that these banks would have to pay more to the Federal Deposit Insurance Corp. to cover the government's costs for seizing failed banks. Community banks had pushed for this change in the financial reform law.
In earnings news, Priceline.com soared 10 percent to lead the S&P 500 after the online travel agency reported earnings that were stronger than expected on Monday afternoon, citing a boost in international bookings. In addition, at least 10 different brokerages raised their price targets on the firm.
LDK Solar jumped after the maker of solar wafers reported third quarter earnings tripled from a year ago, and the Chinese company gave a positive forecast for next year. S&P Equity raised its rating on LDK to "buy" from "hold" and increased its target price to $19 a share from $6.
Shares of Warnaco advanced after the apparel maker reported a 40 percent jump in profits due to international expansion. The company also increased its 2010 outlook.
Meanwhile, Dean Foods shares plunged more than 15 percent after reporting earnings plunged 51 percent, well below estimates, and gave a disappointing outlook for the fourth quarter.
Tyco International shares slipped despite posting better-than-expected profit on strength at its ADT Worldwide security unit.
And Marsh & McLennan shares declined after the global insurance broker's third-quarter profits missed analyst expectations.
General Motors, Macy's and Cisco are among companies slated to report earnings on Wednesday.
In tech news, shares of Limelight Networks leapt more than 15 percent on expectation that online video rental company Netflix
Google announced an 'instant previews' search featurewhere users will be able to see previews of websites before clicking on them.
Research In Motion shares slipped after Kaufman downgraded the smartphone maker to "hold" from "buy," saying competitors are looking to extend into broader mobile markets, which could hurt the firm.
Smartphones running Microsoft's new software are now available for AT&T and T-Mobile USA customers. They phones will compete with Apple's iPhone and an expanding number of phones with Google's Android system.
Steel stocks were mixed after Goldman Sachs issued a report on the industry, saying recovery in the U.S. will be slow as a non-residential construction has yet to come back strong. Goldman raised Reliance Steel to "buy" from "neutral," because of its exposure to the aerospace and energy markets, and it cut AK Steel to "neutral" from "buy" because of higher prices for raw material.
Treasurys pared lossesafter the government auctioned $24 billion of 10-year notes, which had a yield of 2.636 percent and a bid-to-cover ratio of 2.80. Auctions of 30-year bonds are expected on Wednesday.
In the day's economic news, wholesale trade inventories rose 1.5 percent in September, which was more than expected, while September wholesale sales rose by 0.4 percent, less than expected, the Commerce Department reported.
Meanwhile, optimism among small U.S. businesses rose for the third straight month, the National Federation of Independent Business said Tuesday. The organization's small business index rose 2.7 points to 91.7 in October, a figure that is still in recessionary territory.
Trade and weekly jobless claims are the highlights among U.S. economic data out this week, after the surprise gain in October employment reported last week. The weekly report on U.S. jobless claims will come on Wednesday because the bond market is closed on Thursday for Veteran's Day.
Coming Up This Week:
TUESDAY: 10-yr note auction
WEDNESDAY: Weekly mortgage apps, Jobless claims, International trade, Import & export prices, Oil inventories, CFTC hearing on Dodd-Frank, 30-yr bond auction, Earnings from GM, Macy’s and Cisco.
THURSDAY: Veterans Day – Bond market closed, stocks and futures markets open, G20 mtg. begins, Earnings from Kohl’s, Disney and Nvidia.
FRIDAY: APEC CEO summit, Consumer sentiment, Earnings from DR Horton and JCPenney.
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