The second-best performer in the S&P year-to-date, utilities, closed nearly 1.9 percent lower to lead all 10 S&P sectors lower. Following declines in utilities were financials and health care, the only S&P sectors negative year-to-date. The iShares Nasdaq Biotechnology ETF (IBB) ended slightly lower after briefly attempting gains.
"Markets are getting a bit tired after a (sharp run higher). That's probably it more than anything but there's always a catalyst," said Ben Pace, chief investment officer at HPM Partners.
"You have a bias down today," he said. The major U.S. averages are still up about 12 percent or more from their Feb. 11 lows, and the Dow and S&P are about 4 percent below their 52-week intraday highs.
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Outside of overnight declines in European and Japanese stock indexes on soft data, issues weighing on U.S. stocks included concerns about the coming earnings season, the Treasury's announcement of fresh moves to limit inversions, and low oil prices.
In the settle, U.S. crude oil futures turned higher to close up 19 cents, or 0.53 percent, at $35.89 a barrel.
Shares of Allergan closed 14.77 percent lower. Earlier, the stock fell more than 15 percent to a 52-week low after the Treasury Department late Monday took new steps to curb tax-avoiding "inversion" deals in which a U.S. company reincorporates overseas following the purchase of a foreign company. Dublin-based Allergan had agreed to be bought by Pfizer in the biggest inversion deal ever. Shares of Pfizer closed up 2.08 percent on Tuesday.
That "really wasn't helpful on a day like this, especially since health care has shown a lack of leadership," Pace said.
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Stocks attempted to recover much of their morning decline in intraday trade after the ISM non-manufacturing PMI came in for March at 54.5, up from February's 53.4 print. The U.S. Markit services PMI for March also rose, coming in at 51.3 versus 49.7 in February.
In mid-morning trade, the Dow temporarily more than halved morning losses of 141 points and the S&P 500 recovered from a 1 percent dip.
"All of a sudden we're reminded again the U.S. economy is not headed into a massive recession. That's what's new here," said Art Hogan, chief market strategist at Wunderlich Securities.
"We're still going to battle the hurdles that we started the day with, but it looks like we're better (able) to do that battle after that print," he said.
Gold futures briefly jumped more than 1 percent, before settling up $10.30 at $1,229.60 an ounce. The yen traded near its strongest level against the U.S. dollar since October 2014.
The U.S. dollar index was slightly higher, with the euro near $1.138 and the yen at 110.35 yen against the greenback.
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Treasury yields fell to lows not seen in more than a month, with the 2-year yield at 0.72 percent, its lowest since Feb. 25 and the 10-year yield touching 1.717 percent, its lowest since March 1. The German 10-year yield recovered slightly after a sharp fall to a low of 0.081 percent, its lowest since April 2015.
European stocks closed sharply lower, with the STOXX Europe 600 off 1.9 percent and the German DAX 2.6 percent lower. The STOXX Europe 600 Banks index underperformed, falling 3.4 percent on the day and down 4.9 percent for the quarter so far.
The Nikkei 225 fell 2.4 percent and the Hang Seng closed more than 1.5 percent lower. The Shanghai composite closed up nearly 1.5 percent.
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"This persistent weakness in global markets can no longer be ignored," said Peter Boockvar, chief market analyst at The Lindsey Group.
The final March PMI for the euro zone's composite output and services both came in at 53.1, both below flash estimates, according to Markit. U.K. services PMI data was 53.7 for March, up from February's 35-month low of 52.7.
The Markit/Nikkei Japan Services PMI fell to 50.0 in March from 51.2 in February.