Stocks trimmed losses as technology stocks turned around following a handful of weak earnings reports from major Dow components and ahead of the President's State of the Union speech tonight.
The Dow Jones Industrial Average fell more than 5 points after hitting a new 2-1/2 year high and coming within 20 points of 12,000 in the previous session.
AmEx , and Bank if America led the blue-chips lower, while Wal-Mart abd Cisco rose.
The S&P 500 and the Nasdaq were closing essentially flat, shaving losses in the final minutes of trading. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 18.
Most key S&P 500 sectors fell, led by energy, financials and industrials. Telecom, and tech rose.
The dollar rose slightly against a basket of currencies, while commodities continued to sink, led by falling gold prices. The precious metal was near a three-month low, near $1,324 an ounce.(Read more: Is Gold Breaking Down?)
The Reuters/Jefferies Commodities Research Bureau Index fell 1.5 percent.
In the last hour of trading, the Dow briefly spiked higher. The sharp move may have been the result of trading inshares of IBM , according to traders.
Another possible catalyst for the broader market were comments by Laslo Birinyi, president of Birinyi Associates, who said on CNBC that "we're in the second stage of a massive secular bull market," said Dave Rovelli, managing director of equity trading at Canaccord Genuity.
While the market was under pressure much of the day, Joe Saluzzi at Themis Trading said it could be worse given the sluggish UK GDP report, and news within a report on consumer confidence that consumers expect inflation to rise 5.5 percent in the next 12 months.
"There's still some nervousness out there, people are anticipating a pullback," Saluzzi said. But, he added, at "any sign of an uptick, they’ll jump back in."
A handful of Dow components reported earnings this morning including DuPont , which rose after the chemical giant posted a higher-than-expected quarterly profit, despite higher input costs, and raised its 2011 forecast. Travelers also gained after reporting earnings above analyst forecasts.
Verizon advanced after reporting a bigger-than-expected increase in wireless subscribers.
Johnson & Johnsonslumped after reporting a plunge in salesfor consumer producers in the wake of several product recalls. And 3M declined even after the Post-It maker posted results that exceeded analysts' expectations, helped by strong sales to the electronics industry. The conglomerate also raised its full-year forecast.
According to Saluzzi at Themis Trading, disappointing earnings from Texas Instruments, American Express, VMWare and Tellabs weighed on the markets Tuesday.
Many of the so-called momentum stocks, while weaker, were still trading near their 50-day moving averages, Saluzzi said, an indication they were not selling off just yet.
VMWare was among the momentum stocks that have stalled. The cloud computing company reported strong quarterly earnings, but investors focused on news it doesn't expect margins to expand. Two brokerages boosted price targets for the stock, however.
Storage cloud-computing company EMC also declined despite a 61 percent jump in fourth-quarter profit as revenue and margins grew.
Some smaller stocks continued to skyrocket, however, including NXP Semiconductors, biotech comapny Pluristem Therapeutics , and Elan , another biotech, that Jeffereies started with a "buy" rating and a price target of $12 a share.
Of the 131 companies that have reported earnings so far this year, 71 percent have beaten Wall Street estimates.
After-the-bell earnings reports were expected from Yahoo, Norfolk Southern, Juniper Networks and Gilead Sciences.
Meanwhile, Yahoo shares slipped after the search-engine firm announced it would layoff about 150 employees. Yahoo previously laid off 700 workers last month.
The news follows Disney's announcement on Monday to layoff a significant portion of its gaming studio employees, according to sources familiar with the situation. The media conglomerate declined to provide details, but some insiders said the number could be nearly half of the 700-person division. Disney traded lower on Tuesday.
Energy stocks were weaker across the board after gains the previous session, as better-than-expected profits from Baker Hughes failed to provide encouragement for the sector.
Nymex crude for March delivery fell $1.68 per barrel, or 1.91% to $86.19.
Oil prices closed at nearly $86 a barreland the major oil giants—ExxonMobil , Chevron and ConocoPhillips —all fell. ConocoPhillips was slated to post earnings on Wednesday before the bell.
Blackrock got a boost from a doubling in fourth-quarter profits thanks to a stronger stock market and higher fees. AIG shares declined despite news CEO Robert Benmosche's latest health prognosis was good, and that he expects to stay in his job for the next 12 to 18 months.
Elsewhere, Goldman Sachs led financial stocks lower, falling nearly 4 percent. Other major banks fell as well, including JPMorgan and Morgan Stanley .
Navistar International shares jumped after the truck and engine maker said it expects 2011 profit above estimates, saying an improving economy would cause a rebound in sales of trucks, while lower costs and strong parts sales would support profits.
Domino's Pizza shares climbed after SAC Capital bought 5.3 percent of the chain's stock.
All the major indexes may have been off at least half a percent on Tuesday, but the S&P 500, the broadest market index, remains on track to close for the 100th straight day above its 50-day moving average, according to note by Joseph Hargett of Schaeffer's Investment Research.
According to Schaeffer's, historically, the index, on average, has continued to close above this level for another 50 straight sessions. "The last such streak, which occurred in 2006, saw the SPX gain 3.1 percent in the following two months," Hargett wrote.
Treasury prices ticked higherafter the government auctioned $35 billion in 2-year Treasury notes with a yield of 0.650 percent and a bid-to-cover ratio of 3.47. The Treasury is expected to auction $35 billion in 5-year notes on Wednesday, and $29 billion in 7-year notes on Thursday.
On the economic front, the consumer confidence index jumped to 60.6 in January, its highest level since May, according to the Conference Board. Economists had expected the index to rise slightly to 54.3, from an upwardly revised 53.3 in December, according to Reuters.
Also, the Richmond Federal Reserve reported a slowdown in manufacturing activity, as a manufacturing index fell to 18 in January from 25 in December.
The S&P/Case-Shiller indexof home prices fell for the fifth month in a row in November, indicating a double-dip in home prices may be confirmed by spring, according to the group. The index of 20 metropolitan areas fell 0.5 percent in November from October on a seasonally adjusted basis, although economists had expected the index to slip 0.8 percent, according to Reuters. Prices have fallen 1.6 percent for the year.
Meanwhile, the Fed kicks off its first meeting of 2011 and is expected to move ahead with plans to complete its $600 billion bond buying program.
President Obama gives his State of the Union address this eveningand is expected to strike a centrist tone and highlight job creation and American competitiveness. (CNBC will be covering the event live tonight.)
European stocks closed lower, with banks lower on worries about exposure to the peripheral economies of the euro zone and after new data showed Britain’s economic growth slowed in the fourth quarter.
On the Calendar This Week:
TUESDAY: President Obama's State of the Union address; after-the-bell earnings from Yahoo
WEDNESDAY: Mortgage applications, new home sales, oil inventories, five-year Treasury note auction, FOMC announcement; earnings before-the-bell from Boeing, United Technologies, Xerox; earnings after-the-bell from Netflix.
THURSDAY: Durable goods, jobless claims, pending home sales, natural gas inventories, seven-year Treasury note auction, money supply; before-the-bell earnings from AT&T, Caterpillar, and Colgate-Palmolive; after-the-bell earnings from Microsoft.
FRIDAY: GDP (first reading), consumer sentiment; NBCU/Comcast deal closes; before-the-bell earnings from Chevron and Honeywell.
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