Stocks ended lower Wednesday as energy and financials dragged. Consumer discretionary and industrials were among the best performers.
Traders were encouraged by comments from Fed Chairman Ben Bernanke, the Fed's beige-book report and Chinese export data but worries about the BP oil spill and Europe's debt crisis dented confidence.
The Dow Jones Industrial Average shed more than 40 points, or 0.4 percent, after earlier popping above the key 10,000 mark.
The S&P 500and Nasdaq finished down 0.5 percent or more. The CBOE volatility index, widely considered the best gauge of fear in the market, ticked up to 34 after being down near 30 earlier.
The Fed chairman said the recovery appears to be on solid footing but warn that it could take years before the job market gets back to normal.
"Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the demand in economic recovery,'' Bernanke told the House Budget Committee.
This came after a report showed Chinese exports grew about 50 percent from a year earlier, which helped to assuage concerns about a double-dip recession and refueled investors' appetite for risk.
Meanwhile, the Fed said U.S. economic activity continued to improve modestly nationwide last month, but worries about Europe's debt crisis dented confidence, according to the Beige Book collection of anecdotal reports.
This lends support to the Fed's pledge to keep its benchmark interest rate low for an extended period. The Fed will use this report at its next policy-setting meeting later this month, and is widely expected to leave rates unchanged near zero.
BP's market cap has now been cut in half, finishing around 94 billion after being at nearly 190 billion just two months ago.
Caterpillar shares rose after the board of directors voted to raise the firm's quarterly dividendto 44 cents from 42 cents, ahead of the company's annual shareholders meeting this afternoon.
Texas Instruments slipped after an earlier pop as the chip maker said second-quarter earnings and revenues would be at the high end of previous forecasts.
Ciena ended higher after the company said its loss was narrower than expected and that customer spending was improving.
But most other chip makers ended lower after Intel was downgraded to "neutral" on Tuesday by SIG Susquehanna, which cited a weakening PC market.