Stock indexes solidified their losses after the release of minutes from the Federal Reserve's last rate-setting meeting, when the benchmark federal funds rate was reduced by three-quarters of a percentage point, with a majority viewing the easing as justified given the deteriorating economic outlook. .
"The key takeaway was the Fed's concern over the potential for a severe downturn," said analysts at Action Economics.
Off session lows, the Dow Jones Industrial Average fell 35.99 points, or 0.3%, to 12,576.44, with Citigroup Inc. fronting the declines, off 3.4%.
Of the Dow's 30 components, 16 posted losses, with aluminum producer Alcoa Inc. among the blue chips on the decline, its stock down 0.7%. After Monday's close, Alcoa reported a first-quarter profit drop of more than 50%. .
Alcoa's disappointing profit foreshadows a tough reporting season in which the slumping dollar, weak economy and high raw-material costs dog the Street, said Doug Sandler, chief equity officer at Riverfront Investment Group.
"Ultimately we're still in a bear market, and it's going to take some more digestion and some more sideways movement to get out," said Sandler.
The S&P 500 dropped 7 points, or 0.5%, to 1,365.53.
On the S&P, financials led sector declines, off 1.8%, followed by consumer discretionary, off 1.1%, and information technology, down 1%.
Utilities and energy sectors offered mild gains, with utilities up 0.4% and energy up 0.9%.
The technology-heavy Nasdaq Composite shed 16.07 points, or 0.7%, to 2,348.76, with chipmaker Advanced Micro Devices Inc. among those weighing, its shares off 4.9% for the day.
AMD late Monday projected revenue below what it had anticipated and said it would cut its work force by 10%. .
Volume on the New York Stock Exchange neared 3.5 billion, with nearly three stocks on the decline for every two issues posting gains. On the Nasdaq, more than 1.6 billion shares exchanged hands, and decliners topped advancers about 4 to 3.
In commodities trading, crude-oil futures fell, with crude for May delivery down 59 cents to end at $108.5 a barrel on the New York Mercantile Exchange. .
Gold futures fell, with the front contract dipping $8.8 to close at $918 an ounce. .
Still for sale
Earlier on, the National Association of Realtors reported its index of sales contracts on previously owned homes fell 1.9% in February to 84.6, the lowest since the gauge's inception. .
"Overall housing conditions remain bleak, discouraging potential buyers," said Lehman Brothers analyst Michelle Meyer.
Shares of Apple Inc. dropped 2.1% following a downgrade to underperform from market perform by Morgan Keegan, which noted "mounting evidence of broad-based weakness in consumer technology spending in the U.S. and Europe."
Ahead of Tuesday's open, Washington Mutual Inc. projected a first-quarter loss of $1.1 billion, while entering deals to raise $7 billion. .
Speculation that Washington Mutual would draw an investment of $5 billion helped U.S. stocks make modest gains on Monday.
Shares of the struggling lender on Tuesday were off 10.2%, after climbing nearly 30% on Monday.
Starbucks Corp. latest effort to boost sales did not help boost its stock, at least on Tuesday, with its shares siding 1.8% as the company offered free cups of its new roast. .
After the close, mattress giant Sealy Corp. will deliver its first-quarter results, with analysts looking for the company to post a profit, on average, of 9 cents a share.
Overseas, technology sector weakness contributed to a retreat for stocks in Europe. .
Asian markets also retreated, with worries of rising crude-oil prics weighing down airline stocks. .
By Kate Gibson