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Stocks Retreat Amid Stress-Test Jitters

Stocks pulled back Tuesday as the pending results for the government's bank stress test left the market a bit jittery.

The Dow Jones Industrial Average shed 16.09, or 0.2 percent, to close at 8,410.65. The S&P 500 lost 0.4 percent, while the Nasdaq dropped 0.5 percent.

This came after stocks rallied Monday, pushing the S&P into positive territory for the year.

Federal Reserve Chairman Ben Bernanke told Congress Tuesday that the U.S. economy is on track for a recovery but it will be slowand unemployment will continue to rise as businesses remain cautious about hiring.

"We expect economic activity to bottom out, then to turn up later this year," Bernanke said in prepared remarks before a joint congressional economic committee, but cautioned that the recovery could be thwarted if the financial system deteriorates further.

There was only one major economic report today — the ISM reported showed the service sector contracted at a slower pacein April than in March.

“The services sector is beginning to show signs that the worst may be behind it," Joel Naroff of Naroff Economic Advisors wrote in a note to clients. "This report is likely to add to the growing belief that, while the recession is lingering on, it may be getting a lot milder."

Meanwhile, the market is rife with speculation about the bank stress tests, due out Thursday. Reuters reported that ten of the 19 banks tested need fresh capital.

Bank stocks were mixed: Shares of Citigroup rose 3.4 percent and Bank of America gained 4.4 percent, while JPMorgan lost 2.7 percent and Wells Fargo declined 4 percent.

UBS shares fell 1.7 percent after the Swiss bank confirmed a nearly $1.8 billion loss for the quarter and warned that it may need further writedowns in the quarters ahead.

Shares of AIG shot up 19 percent on reports that the troubled insurer will report a first-quarter loss on Thursday but will not need additional capital.

Kraft Foods was one of the top gainers on the Dow, climbing 4 percent, after the company, which makes Macaroni & Cheese, Oreo cookies and Maxwell House coffee, beat its earnings target by a nickeland backed its outlook, helped by cost-cutting measures.

(Are shorts to blame for the current market mess? Click on the video at left.)

CVS Caremarknarrowly beat expectationsas drugstore sales rose more than 3 percent. Shares slipped.

General Motors shares advanced 2.2 percent following news that Germany may assist Italian automaker Fiat in the purchase of GM's German unit Opel.

Chrysler’s planned alliance with Fiatcould be derailed by a group of investment funds seeking to block the deal.

Procter & Gamble shares skidded 2.4 percent after U.S. regulators cited health concerns at one of the company's plants in Puerto Rico, which makes Olay beauty products and Vicks cold medicine.

Still to Come:

WEDNESDAY: Weekly mortgage applications; ADP employment report; Weekly crude inventories; Earnings from Cisco, News Corp., Prudential
THURSDAY: Chain-store sales; Stress-test results; BOE/ECB announcements; Weekly jobless claims; Fed's Bernanke speaks; Consumer credit; Earnings from Unilever, CBS, Nvidia
FRIDAY: Jobs report; wholesale trade; Earnings from Toyota, Berkshire Hathaway

Send comments to cindy.perman@nbcuni.com.