Stocks added to losses amid mixed earnings results, disappointing U.S. economic news, and continuing worries about the euro zone debt crisis.
The Dow Jones Industrial Average fell more than 130 points after sliding on Mondayamid worries about Europe's financial situation, and a downdraft in tech stocks.
Hewlett-Packard led the Dow lower after news it would cut its forecast for the third quarter and the year, despite good first quarter results. The tech firm cited the effects of the Japanese disasters, weak personal computer sales, and reducing operating profit for services.
HP had released its results a day before scheduled after news of a leaked memo by CEO Leo Apotheker, which warned executives of "another tough quarter."
Home Depot, meanwhile, led Dow gainers after beating profit estimates by one penny as investors shrugged of a drop in sales compared with last year, which the home improvement retailer blamed on bad weather.
TheS&P 500 and the Nasdaq also fell. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 18.
Among key S&P 500 sectors, materials and industrials fell, while utilities gained.
Stocks pared losses for a short while mid-morning as investors came in to "buy the dips," said Joe Saluzzi, co-manager of trading at Themis Trading. But the brief rally didn't hold as losses began accumulating again.
One reason is that various stock indexes are sitting on, or have broken through, their 50-day moving averages. Traders are watching to see whether they break below those levels and hold, which could be a sign of further weakness to come, Saluzzi said.
A moving average refers to the average value of a stock's price over a period of time. Traders use the averages to identify levels of support and resistance for the market.
S&P 500 futures traded below its 50-day moving average of about 1,319 by late morning.
"A lot of traders think (the 50 day-moving average) will hold, but if doesn’t, I see an air pocket that takes you down to the 200-day moving average pretty quickly," Saluzzi said. That would be 1,230, he said.
A rise in the dollaragainst a basket of currencies as the euro weakened, also pressured stocks.
The stronger dollar also helped to push oil prices lower. U.S. light, sweet crude fell below $97 a barrel, while in London, Brentcrude fell below $110.
Meanwhile, bonds rallied on the weak U.S. economic data, and as investors continued to prefer the safety of goverment securities to risky assets like stocks and commodities.
Elsewhere in earnings news, Wal-Mart fell despite reporting a profit as investors focused on news U.S. same-store sales results fell 1.1 percent in the first quarter.
Also among retailers, Urban Outfitters gained after beating revenue expectations, although it reported weak earnings. TJX , meanwhile, fell after reporting profit results in the last quarter were hurt by the closing of its A.J. Wright chain, and a decline in same-store sales in Europe.
Dell reports earnings after the market closes, while several retailers, including Abercrombie & Fitch,BJ's,Chico's and report before the bell on Wednesday. Deere also reports before the market opens.
In initial public offering news, LinkedIn said it boosted the price of its shares by 30 percent to a range of $42 to $45 a share, Reuters reported. The new price would value the social networking site for professionals at about $4 billion. (Read more: Watched LinkedIn for Signs of Social Media Bubble).
On the economic front, U.S. industrial output was unchanged in April, as factory production fell 0.4 percent, the first drop in 10 months, according to a Federal Reserve report. Analysts surveyed by Reuters expected a 0.4 percent increase in overall output.
Capacity utilization fell to 76.9 percent in April from a downwardly revised 77 percent in March. Analysts surveyed by Reuters had expected capacity utilization to rise to 77.6 percent.
Housing starts fell 10.6 percent in April, to an annual rate of 523,000 units compared with an upwardly revised gain of 12.9 in March, a 585,000-unit pace, the Commerce Department said. Building permits, meanwhile, fell 4 percent compared with a gain of 7.5 percent in March, Commerce said. Residential construction fell 23.9 percent from April last year.
Also on the economic front, industrial production data will be released at 9:15 a.m. and is expected to have risen 0.5 percent in April, slower than March's 0.8 percent advance, according to Briefing.com.
On Tap This Week:
TUESDAY: JPMorgan shareholder meeting, Shell Oil annual meeting; earnings after-the-bell from Dell.
WEDNESDAY: Weekly mortgage applications, oil inventories, FOMC minutes, Fed's Bullard speaks; earnings from Abercrombie & Fitch, BJ's, and Target.
THURSDAY: Weekly jobless claims, existing home sales, Philadelphia Fed survey, leading indicators, money supply, Halliburton shareholder meeting, Intel shareholder meeting, McDonald's shareholder meeting, Sallie Mae annual meeting, LinkedIn IPO; earnings from GameStop, Sears and Gap.
FRIDAY: JCPenney shareholder meeting, Macy's shareholder meeting, Time Warner shareholder meeting; earnings from Ann Taylor
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