"The interest rate situation bears watching," said Kevin Kruszenski, head of trading at KeyBanc Capital Markets. "People are also getting nervous about earnings misses, after TI guided lower."
The Dow Jones Industrial Average was down 41 points at 13,383, as 25 of its 30 components retreated, led by Alcoa Inc. , Caterpillar Inc. , Merck & Co. Inc. , Hewlett-Packard Co. and General Motors Corp. .
The S&P 500 eased 7.9 points to 1,501, while the Nasdaq Composite eased 14.7 points to 2,557.
Trading volumes showed 734 million shares exchanging hands on the New York Stock Exchange and 1 billion shares trading on the Nasdaq. Declining issues topped gainers by 26 to 5 on the NYSE and by 3 to 1 on the Nasdaq.
By sector, gold , semiconductors , airlines , biotechnology and internet shares were all falling heavily.
Pressuring the tech sector, Texas Instruments Inc. dropped 1.4% after it reduced the top end of its second-quarter earnings forecast, citing weaker-than-expected sales of its calculators and wireless devices.
In other technology developments, Apple Inc. is planning to launch a new version of its Safari browser, according to reports. The browser will run on Microsoft Corp.'s Windows operating system.
Bonds call the shots
On Monday, stocks lost early gains as the market continued to monitor rising global interest rates amid signs of global growth and hawkish talk from a Fed official. The Dow industrials rose 0.6 of a point, the Nasdaq Composite fell 1.4 points and the S&P 500 rose 1.5 points.
"Stocks are still focused on interest rates, as evidenced by the inverse relationship to yields throughout yesterday's trading," said Marc Pado, chief U.S. market strategist at Cantor Fitzgerald. "Yields started at their high and stocks opened near their lows."
Again on Tuesday, the market took its cues from the bond market.
Treasurys were pressured by overnight news that China's May inflation accelerated at its fastest pace in over two years.
Adding to those concerns, an auction of 10-year Treasury bonds showed waning demand. The 10-year Treasury note was last down 16/32 to 94-15/32 with a yield of 5.223%.
Bonds, which are fixed-income assets, lose value as inflation rises. While the U.S. economy has been slowing and the Federal Reserve has kept rates steady since last year, global growth has picked up some steam leading to higher bond yields overseas and putting central banks on watch for inflation.
"That idea of reflation worldwide means we have to keep an eye on what's going on overseas," said KeyBanc's Kruszenski. "At the same time, we're getting some key [U.S.] economic data on inflation starting tomorrow."
May import prices, to be released on Wednesday, along with retail sales, and the Federal Reserve's Beige Book of economic conditions. On Thursday and Friday, investors will focus on key producer and consumer prices.
Former Federal Reserve Chairman Alan Greenspan, who is nearly as visible in retirement as he was in office, is also due to speak later in the session. The Treasury Department budget for May will be released at 2 p.m. Eastern.
The dollar was higher against the euro but down against the yen. Trade could be more active on Wednesday when the Treasury Department releases its semi-annual report on global exchange rate policies.
Commodities were under pressure. The front-month crude oil contract was off 48 cents at $65.49 an ounce. The International Energy Agency increased its global demand outlook for petroleum products, but analysts expect Wednesday's U.S. data to show an increase in refnery utilization as well as a climb in motor gasoline supplies for a sixth week in a row.
Gold futures also moved down, losing $5.80 to $650.40 a barrel, amid dollar strength and falling crude oil prices.
Broker/dealers , which tend to lead the market, were also falling amid concerns about rising interest rates.
Bucking the trend, Lehman Brothers gained 2.3% after the Wall Street bank posted a 25% rise in quarterly revenue and earnings that outpaced the predictions of Wall Street analysts.
Elsewhere, Dow Jones Co. Inc. , the publisher of this report, was again in the news. The Bancroft family, which controls a preponderance of the voting shares of the company's stock, is planning to send its suitor News Corp. a proposal for a board to safeguard The Wall Street Journal's editorial independence.
YouTube, which is being bought by Google Inc. , is going to test video fingerprinting technology to identify clips by companies like Time Warner Inc. and Walt Disney Co. .
By Nick Godt