Stocks gave up all of the day's earlier gains Tuesday to close lower for a fifth straight session, after Fed chairman Ben Bernanke acknowledged the economic slowdown, but didn't imply any further monetary stimulus ahead.
The Dow Jones Industrial Average declined 19.15 points, or 0.16 percent to finish at 12070.81, cutting all of the session's gains. Cisco was among the blue-chip laggards.
The S&P 500 fell 1.23 points, or 0.10 percent, to end at 1284.94.
The tech-heavy Nasdaq slipped 1 point, or 0.04 percent, to close at 2701.56.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P sectors health care and materials gained, while techs slipped. Financials, which had been trading higher for most of the day, turned lower immediately after Bernanke's speech started.
At a banking conference in Atlanta, Bernanke said the economy is in a slowdown, but offered no suggestion the central bank is considering further stimulus.
"U.S. economic growth so far this year looks to have been somewhat slower than expected," said Bernanke. "A number of indicators also suggest some loss in momentum in labor markets in recent weeks."
"I'm not surprised," Data Saporta, economist at Credit Suisse told Reuters. "They see the slow patch as being transitory. It gives them a chance to revisit their central tendency forecasts later this month...it seems to me they are not panicking with the recent slow patch in data. They expect to see things picking up in the second half."
Earlier, Richard Fisher said the Fed is not holding back the economy and that there is no need to continue the easy monetary policy.
"The question is who steps on the pedal to accelerate the car—It’s out of our hands right now," the Dallas Fed President told CNBC.
Meanwhile, Atlanta Fed President Dennis Lockhart said the economic rebound remains disappointingly erraticand hinted that the central bank may be considering further stimulus.
Banks turned lower following Bernanke's speech with Bank of America and Wells Fargo down almost 2 percent each.
Regions Financial said it will repurchase $1 billion in credit card accounts from Bank of America's
Morgan Stanley said it may cut the number of brokers in its wealth management division. The announcement follows a layoff of about 300 brokers in the previous quarter.
Oil gained amid expectations that OPEC will increase its production quota for the first time in 2-1/2 years this week, although the amount is still under discussion. London Brent crude gained $2.30 to settle at $116.78 a barrel, while U.S. light, sweet crude rose 8 cents to settle at $99.09.
Meanwhile, oil drillers including Halliburton and Baker Hughes advanced following a forecast from Dahlman Rose & Co stating that global spending on oil and gas exploration and production may grow 14 percent in 2011.
The dollar declined to a one-month low against a basket of currencies after a Chinese official said the greenback would continue to weakenversus other major currencies. But gold failed to decline on the heels of a weaker dollar, slipping $3.20 to settle at $1,544 an ounce. (Read More: Dollar Rise Will Spell Trouble for Gold—Analysts)
Material stocks showed strength with Rio Tinto and BHP Billiton gaining.
General Motors said May vehicle sales in China slipped for the second consecutive month amid a slowdown in the world's largest market. Meanwhile, Ford CEO Allan Mulally is expected to tell investors the automaker plans to increase sales by 50 percent over the next four years.
General Electric and Capital One have submitted bids for ING's U.S. online banking operations in a deal worth about $9 billion, Bloomberg reported.
Meanwhile, Disney announced it will cut around 200 jobs at its movie studio as it reduces its focus on home entertainment distribution of DVDs.
International Paper launched a $3.3 billion unsolicited offer for rival Temple-Inland as it dug in for what could be a prolonged battle to dominate North America's corrugated packaging business. Temple-Inland shares skyrocketed more than 40 percent. The bid helped lift other paper companies, including Weyerhaeuser.
On the tech front, Intel gained after a Citigroup research note speculated that the Dow component may enter into a deal with Apple to produce semiconductors that power devices such as the popular iPhone and iPad.
Research In Motion slipped after Morgan Keegan cut the BlackBerry maker's rating to "market perform" from "outperform." Sprint also declined after Stifel Nicolaus cut the telecom firm's rating to "sell" from "hold."
Sony unveiled its new PlayStation Vitahandheld games device, but critics said the price of the gadget was too expensive.
On the earnings front, PepBoys plunged over 15 percent after the car service chain, reported results that missed estimates, due to bad weather and higher gas prices that constrained consumer spending.
And Talbots tanked almost 40 percent after the women's clothing retailer warned its revenue would fall for a fifth straight quarter.
Treasury prices added to earlier lossesafter the government auctioned $32 billion in 3-year notes, which had a high yield of 0.765 percent and a bid-to-cover of 3.28. Auctions of 10-year notes and 30-year bonds are expected Wednesday and Thursday, respectively.
Trading was light with volume on the consolidated tape of the NYSE was 3.52 billion shares, while 930 million shares changed hands on the floor.
On the economic front, U.S. consumer credit outstanding jumped by $6.25 billion during April after a downwardly revised $4.82 billion rise in March, reflecting a gain in student and car loans.
European shares finished flatafter a four-session slide, amid growth concerns and as the euro zone peripheral debt crisis continue to weigh on sentiment.
The IMF is open to delaying Greece's repayment of its international loans but believes a major restructuring of its debt would create serious problems in the euro zone, according to an official.
Coming Up This Week:
WEDNESDAY: Weekly mortgage applications, McDonald's sales data, quarterly services survey, oil inventories, 10-year Treasury note auction, Fed's Beige Book; Fed's Hoenig speaks; Caterpillar shareholder meeting.
THURSDAY: Bank of England announcement, European Central Bank announcement; international trade, jobless claims, wholesale trade, 30-year Treasury bond auction, money supply; Lubrizol shareholders vote on Berkshire takeover; Fed's Plosser speaks, Fed's Yellen speaks; earnings from National Semiconductor.
FRIDAY: Import & export prices, Treasury budget; earnings from Lululemon Athletica.
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