The declines remained shallow, however, after well-received earnings from State Street and other regional banks helped ease concerns about financials, after Wachovia on Monday posted an unexpected loss.
"We didn't get another Wachovia today," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
Wachovia posted an unexpected quarterly loss Monday, a stark reminder of the credit-market troubles crippling results in the financial sector and elsewhere.
Crude-oil futures hit a new high near $114 a barrel, lifting the energy sector and also providing support to the broader market.
The Dow Jones Industrial Average was down 12 points to 12,289.
Declines in shares of Boeing Co. , IBM and Verizon weighed on the Dow.
Chevron Corp. and Exxon Mobil Corp. gained ground, along with broad gains in the energy sector.
Also on the Dow, Johnson & Johnson fell 0.5% despite posting upbeat earnings, while Intel Corp. fell 0.5% to $20.79, ahead of its earnings after the close.
"The market is digesting the whole banking and financial issues, but the market has still to digest the recession story and how much of a damage to earnings we'll get," Fitzpatrick said.
The S&P 500 index was down 1.8 points to 1,326, while the Nasdaq Composite lost 1.89 points to 2,271.
Trading volumes showed 482 million shares trading on the New York Stock Exchange, with declining issues topping gainers by 8 to 7. On the Nasdaq Stock Market, 331 million shares traded, with decliners topping gainers by7 to 6.
On the economic front, manufacturers in the state of New York were once again positive about the economy in April, the N.Y. Federal Reserve Bank reported. The Empire State index jumped nearly 23 points in April to 0.6 from negative 22.2 in March.
Wholesale prices soared 1.1% in March, led by rising energy and food prices, the Labor Department reported. But the core producer price index, which excludes volatile food and energy, rose only 0.2%. Economists surveyed by MarketWatch had expected the PPI to rise 0.4% and the core to rise 0.2%.
The dollar strengthened slightly after the data, while crude futures spiked to a fresh high. Light crude futures contracts hit $112.97 and were recently up $1.04 a barrel to $112.80, helped by supply disruptions.
Earnings season also swung into full gear Tuesday as State Street Corp. reported a 69% rise in first-quarter net income to $530 million, or $1.35 a share. Adjusted earnings were $1.39, topping the $1.30 expected by analysts.
Investors were also digesting what the proposed merger of Delta Air Lines Inc. and Northwest Airlines Corp. would mean for other U.S. carriers.
Delta and Northwest said Monday that they had agreed to a $17.7 billion merger deal in what would create the world's second-largest carrier after Air France-KLM, raising investor hopes that the emerging company will be better positioned to deal with the soaring price of fuel and a more competitive global environment.
Northwest shareholders are to receive 1.25 Delta shares for each share they own, representing a 16.8% premium over Monday's closing prices.
Also in the spotlight, shares of AstraZeneca rose in London after reaching a settlement with Indian drugmaker Ranbaxy on a copycat version of its drug Nexium. Ranbaxy won't start making a generic version until May 2014.
Indian software giant Infosys Technologies said current fiscal-year earnings per share would grow by at least 16%, matching market forecasts.
By Nick Godt