Stocks quickly clawed back in the final hour of trading Tuesday but still ended lower, with the Dow logging its third-consecutive triple-digit loss, pressured by ongoing worries in the euro zone.
Stocks further pared their losses in the final minutes after a report from the Wall Street Journal reiterated that the Federal Reserve is moving closer to action to spur growth.
“We have a continuation of selling from yesterday,” said Todd Schoenberger, managing principal at The BlackBay Group. “While there’s not exactly any new news, the issue going forward is that there’s no bullish catalyst…and there’s an overwhelmingly pessimistic feeling that the Fed’s not going to do much.”
The Dow Jones Industrial Average tumbled 104.14 points, or 0.82 percent, to close at 12617.32, led by Cisco and AT&T. Earlier, the Dow had been down nearly 200 points. The blue-chip index posted its third triple-digit losses for the third-straight session.
The S&P 500 dropped 12.21 points, or 0.90 percent, to end at 1,338.31. The Nasdaq slumped 27.16 points, or 0.94 perecnt, to finish at 2,862.99.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped almost 10 percent to end above 20.
All key S&P sectors closed in the red, led by telecoms and materials.
Stocks opened lower as Spanish five-year government bond yields jumped above 10-year yields for the first time in over a decade as investors remained nervous that the country may need a full-scale sovereign bailout. The 10-year last traded above 7.5 percent. (Read More: Spain's Catalonia Studying Federal Aid, but in No Rush)
The selloff accelerated in midday trading after European Union officials said Greece will likely require further restructuring of its national debt, according to reports.
In addition, euro zone's private sector shrank for the sixth month in July, fueling fears the region will slide back into recession. And ratings agency Moody’s put Germany, the Netherlands and Luxembourg on negative watch.
Despite the selloff, some strategists remained optimistic.
“On a day-to-day basis, the market does react to European headlines, but if you take a step back and look at the bigger picture, the U.S. has been diverging from Europe,” said Todd Salamone, director of research at Schaeffer's Investment Research, noting that the S&P 500 is still up almost 7 percent year to date. “We’re still bullish on the market and think pullbacks such as these are opportunities to buy.”
Tech giant Apple briefly dipped below $600 a share ahead of its earnings report after the closing bell. Some analysts expressed concernthat the results may not be as stellar as expected as consumers take longer to upgrade existing devices like the iPhone. Apple shares hit an all-time high of $644 in early April.
Cisco tumbled nearly 6 percent amid fears over a possible sales slowdown and after the Dow component said it would cut about 1,300 workers. Separately, the tech company won European Union regulatory approval for its $5 billion purchase of TV software developer NDS.
Texas Instruments reported earnings that beat expectations but handed in weak projectionsfor third-quarter earnings and revenue. In addition, at least eight brokerages slashed their price targets on the chipmaker.
Among other earnings, UPS slid after the package-delivery company reported results that fell short of Wall Street's expectations and cut its full-year forecast.
DuPont posted results that edged past expectations, but the Dow component said global economic uncertainty would push its 2012 profit to the low end of a previously announced forecast.
And AT&T reported earnings that topped estimates, but revenue was slightly lighter than expected.
Netflix , Juniper and Broadcom are also expected to post results after the bell.
Yahoo cut losses after hedge fund manager Dan Loeb of Third Point purchased another 2.5 million sharesof the company for about $39.5 million, according to an SEC filing.
Nearly 30 percent of S&P 500 companies have posted results so far with 67 percent of earnings reports coming in above estimates and 21 percent missing expectations. Meanwhile, 60 percent of companies have have missed revenue forecasts, according to data from Thomson Reuters.
DeVry plunged after the for-profit education company warned that its fourth-quarter earnings and revenue will fall far short of expectations and added it will cut 570 jobs. At least two brokerages lowered their ratings, while another two cut their price targets on the company.
The government auctioned $35 billion in 2-year notes at a high yield of 0.220 percent and bid-to-cover of 4.00. The 10-year treasury bondhit a record-low yield of 1.394 percent.
On the economic front, manufacturing activity in the mid-Atlantic region fell at a steeper rate than expected, according to the Richmond Fed Manufacturing Index.
Home prices rose in April, while logging a 3.7-percent year-over-year gain, according to the Federal Housing Finance Agency.
—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
WEDNESDAY: Weekly mortgage apps, new home sales, oil inventories, 5-yr note auction, USDA food prices outlook; Earnings from Arcelor Mittal, Boeing, Bristol-Myers, Caterpillar, ConocoPhillips, Ford, GlaxoSmithKline, PepsiCo, Visa, Symantec, Western Digital, WholeFoods, Zynga
THURSDAY: Durable goods orders, jobless claims, pending home sales, 7-yr note auction, CFTC emergency meeting; Earnings from AstraZeneca, ExxonMobil, 3M, Credit Suisse, Dow Chemical, Pulte, Sprint, Amazon.com, Amgen, Facebook, Expedia, Starbucks
FRIDAY: GDP, consumer sentiment, summer Olympics start, 100 days to election; Earnings from Chevron, Merck, Barclays, DR Horton
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