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Stocks stumbled in the final minutes of trading to end near session lows Tuesday, with the Dow and S&P posting their fourth-straight session in the red, as investors remained cautious amid uncertainties surrounding central bank's stimulus program and budget discussions in Washington.
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"We enter the day after the S&P 500 finished giving back all of last week's Fed induced euphoria [on Monday]," wrote Peter Bookvar, managing director at The Lindsey Group. "It's very unusual action considering how so much of the year's gains have been driven by the help of QE. We've either reached a point where the market can't keep using the same excuse to rally with the same effectiveness or we assume that the taper is coming soon anyway."
The Dow Jones Industrial Average fell 66.79 points to end at 15,334.59, dragged by JPMorgan and Verizon.
The slid 4.42 points to close at 1,697.42, while the Nasdaq eked out a gain of 2.97 points to finish at 3,768.25.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 14.
Meanwhile, the Russell 2000 index crept higher to hit an all-time high. Small-cap stocks have led for most of the year, surging nearly 27 percent.
Among key S&P sectors, telecoms and consumer staples led the laggards, while industrials finished modestly higher.
In a busy week for speeches by Fed officials, New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart took a dovish tone at the start of the week. Dudley said he supported the Fed's surprise decision to delay scaling back its monthly $85 billion bond-buying program, given the lack of momentum in the U.S. economy.
Dallas Fed President Richard Fisher, however, was more hawkish, indicating that he would have opposed the inaction if he had a vote.
Last week, she said the Federal Reserve created confusion in the market with its lack of decision to taper.
Investec analyst described the "Fed flustering" as a "very bad one-sided baseball game."
"Bernanke threw a massive curveball with a surprise no taper on Wednesday saying any scale back would be data dependent," the analysts wrote in a note on Tuesday. "(On Monday) it was Dudley and Fisher off the benches, throwing dovish and hawkish fastballs just to confuse us all a bit more. The world series of mixed messages isn't over quite yet however, we have nine more Fed speakers on the mound before the week is out."
Meanwhile, Cleveland Federal Reserve President Sandra Pianalto did not comment on the current outlook for the economy or monetary policy in her prepared remarks at a payments symposium hosted by the Chicago Federal Reserve.
(Read more: Fisher: Fed selection process 'terribly' mishandled)
Concerns over the debt ceiling lingered ahead of the October 1 deadline for Congress to pass a resolution to keep the government funded. If a deal is not struck, it could force a partial shutdown of the government.
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"We're going to tread water until Washington figures out what to do," said Brian Battle, vice president of trading at Performance Trust Capital Partners. "They'll likely wait until the last minute and the political solution seems to be to kick the can down the road."
Among earnings, Lennar advanced after the homebuilder posted better-than-expected earnings as it sold more homes at higher prices. Other homebuilders were in positive territory, including Ryland, KBHome and Toll Brothers.
Carnival fell sharply after the cruise operator warned it could post a loss for the current quarter after reporting a 30-percent decline in its third-quarter earnings.
Facebook rallied to hit a record high after Hong Kong newspaper South China Morning Post reported that the social-networking giant, Twitter and other websites deemed sensitive and blocked by the Chinese government will be accessible in a planned free-trade zone (FTZ) in Shanghai. Earlier, Citi upgraded the Internet stock to "buy" from "neutral," citing the sustainability of recent increases in growth even amid initial uncertainty about an increasing shift to mobile use.
Apple climbed after at least four brokerages lifted their price targets on the tech giant. On Monday, Apple said that sales for its new iPhone had set a record, with consumers snapping up nine million smartphones within the first few days of its launch.
Applied Materials spiked to lead the S&P 500 gainers after the chipmaking equipment producer said it will acquire rival Tokyo Electron in an all-share deal, creating a company with a combined market value of $29 billion.
(Read more: 'Dr. Doom' Roubini makes case FOR the US economy)
On the economic front, home prices climbed 0.6 percent in July, according to the S&P/Case-Shiller composite index of 20 metropolitan areas. Compared to a year earlier, prices were up 12.4 percent, matching economists' expectations and marking the strongest rise since February 2006.
(Read more: Forget easing prices, new homes are up, up, up)
"The recovery in housing has been an important source of support for the U.S. economy, with residential investment adding to real GDP (gross domestic product) growth for eight consecutive quarters," said Barclays analysts Hamish Pepper and Cagdas Aksu in a note on Monday.
Meanwhile, the consumer confidence index declined slightly in September to 79.7 from a revised 81.8 in August, according to the Conference Board. Economists polled by Reuters expected a reading of 79.9.
Treasury prices gained after the government auctioned $33 billion in 2-year notes at a high yield of 0.348 percent. The bid-to-cover ratio, an indicator of demand, was 3.09.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
On Tap This Week:
WEDNESDAY: Mortgage applications, durable goods orders, new home sales, oil inventories, 5-yr note auction, Samsung Galaxy products available; Earnings from AutoZone, Bed Bath & Beyond
THURSDAY: GDP, jobless claims, corporate profits, pending home sales, natural gas inventories, Fed Kocherlakota speaks, 7-yr note auction, Fed balance sheet/money supply, Fed's George speaks, weekly rail numbers; Earnings from Nike, Accenture
FRIDAY: Fed's Evans speaks, personal income & outlays, consumer sentiment, Fed's Dudley speaks, farm prices; Earnings from BlackBerry
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