Stocks climbed well off their worst levels Tuesday, but still lower for the third-straight day amid fears about the ongoing euro zone debt crisis and concerns over another recession.
All major averages posted their worst three-day start this month since Oct. 2008 and the S&P is on pace for the biggest quarterly loss since the fourth quarter of 2008.
The Dow Jones Industrial Average fell 100.96 points, or 0.90 percent, to end at 11,139.30, clawing back from its worst levels. Bank of America and JPMorgan led the blue-chip laggards.
The S&P 500 shed 8.73 points, or 0.74 percent, to close at 1,165.24. The Nasdaq slid 6.50 points, or 0.26 percent to finish at 2,473.83.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, finished near 37.
Most of the S&P sectors finished in the red, led by financials and industrials.
“We haven’t had anything positive to build on and no way to get momentum,” Gordon Charlop, managing director of Rosenblatt Securities told CNBC. “With the kind of information we’re getting and with the situation in Europe, there isn’t a lot for investors to get excited about.”
Banks in talks with state prosecutors to settle claims of improper mortgage practices have been offered a deal, according to the Financial Times.
The FT said the proposed settlement language also might release the financial institutions, which include Bank of America , JPMorgan Chase , Wells Fargo and Citigroup , from legal liability for wrongful securitization practices.
Nomura cut its price targets on a number of banks including BofA, Citigroup, JPMorgan and Goldman Sachs. In addition, Credit Suisse cut its estimates for Goldman Sachs and Morgan Stanley.
“The news of the day is obviously Europe,” Tres Knippa of LotusBrokerage.com told CNBC. “What worries me the most is that the IMF may pull the second round of funding to Greece and if that happens, Greece goes into default sooner rather than later and that news is going to cause some real turmoil in Europe over the short-term.”
European shares hit a two-year closing low, led by banks, as rising debt yields continued to spook investors.
Shares of European banks trading in the U.S. tumbled sharply including Credit Suisse , UBS and Barclays .
Italy is at the center of the euro zone attention, with doubts on whether the government can deliver a promised austerity package and trade unions threatening strikes as parliament debates the austerity measures.
Meanwhile, the Swiss National Bank decided to set a minimum exchange rate of 1.20 francs to one euro, in an attempt to curb the appreciation of the franc, which is hurting the nation's exports. The euro and the dollar soared against the Swiss francon the decision.
Among techs, Dell said it will partner with Baidu to develop tablet computers and mobile handsets, in an aim to target the Chinese market dominated by Apple's iPad. Meanwhile, Canaccord Genuity raised its price target on Apple to $545 from $515.
Netflix gained after the movie-streaming company launched its service in Brazil in an effort to enter into the Latin American market after recent setbacks in the U.S.
Meanwhile, Dendreon said it closed its partnershipwith GlaxoSmithKline on the companies' joint prostate cancer vaccine.
Sunoco rose after the energy firm said it plans to exit its refining business, in an effort to continue shedding assets to focus on its logistics business.
Temple-Inland soared more than 20 percent after International Paper announced a definitive agreement to buy the packaging firmfor $32 per share in cash.
Gold jumped near $1,900 an ounceas investors rushed to the precious metal as a safe-haven play. Newmont Mining was the only stock on the S&P 500 to touch an all-time high.
On the economic front, the pace of expansion in the U.S. services sector rose more than expected, snapping a three-month streakof slower growth, according to the Institute for Supply Management.
“The economy is weak, but it’s not right not slipping into recession and that’s what this [report] confirms for me,” Brian Wesbury, economist at First Trust Advisors told CNBC. “The stock market is extremely undervalued today and if we don’t fall into a recession, I think we can have a very powerful snapback in the second half of this year.”
Investors continue to anticipate a Thursday speech from President Obama, who is expected to unveil a package to boost employment to Congress. The sluggish U.S. economy is hurting Obama's chances of being re-electedin presidential elections next year.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
Coming Up This Week:
WEDNESDAY: Weekly mortgage applications, Beige Book; Earnings from Hovnanian
THURSDAY: BoE announcement, ECB announcement, international trade, jobless claims, quarterly services survey, oil inventories, Bernanke speaks, consumer credit, TI mid-quarter update, OECD's global economic outlook, Obama talks jobs/economy; Earnings from Smithfield Foods
FRIDAY: McDonald's August Sales, wholesale trade, G7 finance ministers meet; Earnings from Kroger, Lululemon Athletica
More From CNBC.com:
- September 11 Ten Years Later: Who's On Wall Street
- Yes, You Can Actually Eat Gold—Here's How
- America’s Deadliest Jobs 2011