"We're trying to ascertain what the market is worried about now," said Art Hogan, chief market strategist at Jefferies & Co. "Last week, we were concerned about the yield of the 10-year bond and the Bear Stearns hedge funds time bomb."
"It's the same this week," Hogan said.
Stocks gave up hefty gains Monday to finish slightly lower, in what traders call a "dead-cat bounce". Tuesday's gains could also evaporate later in the session in what remains a volatile market.
The Dow Jones Industrial Average was last up 30 points at 13,378, well off an earlier high of 12,422. Of the Dow's 30 components, 15 advanced, led by Merck & Co. , Johnson & Johnson and AT&T Inc. .
Also among blue chips, Altria Group Inc. rose 0.8%. The company said will take a charge of $325 million, or 10 cents a share, to shut down its 2,500-employee Philip Morris cigarette factory in Cabarrus, N.C., by 2010 in a move to cut costs.
The S&P 500 fell 0.4 points to 1,497, while the Nasdaq Composite eased 3.6 points to 2,573.
Among key technology shares, Apple Inc. dropped 1.4%, after the company and AT&T Inc. unveiled prices for service plans to use Apple's iPhone. Elsewhere, Oracle fell 0.9% ahead of its earnings report after the bell.
Trading volumes showed 565 million shares trading on the New York Stock Exchange and 722 million on the Nasdaq stock market. Declining shares outweighed gainers by 8 to 7 on the NYSE and by 15 to 12 on the Nasdaq.
By sector, gold shares , oil services and natural gas led the way down, while pharmaceuticals , telecoms and utilities advanced.
A report showing new home sales fell 1.8% in May after surging in April, was still slightly better than expected.
But another housing report -- Standard & Poor's Case-Shiller home price index - showed home prices fell at the fastest pace in 16 years in Apri.
In addition, homebuilder Lennar Corp. slumped 1.2% after posting a quarterly loss, citing continued deterioration in the housing market. The firm also forecast further weakness.
"There is no reason to think a proper recovery [in housing] will start anytime soon," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Subprime, hedge fund jitters
On Monday, stocks closed a volatile session with mild losses amid continued nervousness about subprime lending and the near collapse of two hedge funds owned by Bear Stearns Cos. Inc. , with exposure to that sector. The Dow first rallied to gain over 120 points in the morning before falling back to close down 8 points.
On Tuesday, Bear Stearns continued to fall slightly, along with Goldman Sachs and Lehman brothers .
Monday's losses followed a heavy selloff on Friday, leaving investors to ponder the market's next move.
"Technically, the market took a big blow on Friday. A snap-back bounce proved to be little more than a trade and not a major market turn," said Marc Pado, U.S. strategist at Cantor Fitzgerald. "Now we have to focus on what will make this decline accelerate."
A dearth of over-the-weekend deal news on Monday had fueled concerns that rising interest rates might slow the flow of leveraged deals. Such deals, which often rely on heavy borrowing, have fueled the private-equity buyout bonanza and the stock market over the past few years.
Shares of Blackstone Group LP , the private equity group, slid 4.7% below the $31 level where the company priced shares in its initial public offering last Friday. There are also concerns about proposed legislation that would lift taxes on private equity.
Meanwhile, some deal ews came back to the fore on Tuesday.
BlackRock Inc. agreed to buy the fund-of-funds business of Quellos Group for up to $1.7 billion. BlackRock said the deal will make it one of the largest fund-of-funds providers, with over $25.4 billion under management.
The Dutch advocate general declared that ABN Amro's planned $21 billion sale of its LaSalle unit to Bank of America doesn't require a shareholder vote. The decision is viewed as advancing Barclays plc in its bid to acquire ABN Amro.
And News Corp. and Dow Jones & Co. Inc. were close to a deal to allow editorial protections for Dow Jones, the Wall Street Journal report. The deal might pave the way for Dow Jones to accept News Corp.'s 5 billion bid for Dow Jones, the publisher of both the Wall Street Journal and of MarketWatch.
Stocks on the move
Shares of retailer Target Corp. fell 0.2%. The company said that June same-store sales growth will be at the low end of its planned 3%-to-5% range.
On the earnings front, Kroger Co. fell 4.2%. It reported quarterly earnings before special charges that exceeded analyst's expectations and a gain in revenue. There were few premarket quotes for the supermarket operator's stock, but it should be active after the opening.
There also are earnings reports scheduled for and Nike Inc. after the Tuesday close.
Commodities prices were pushed lower ahead of the data reports later in the morning.
Crude oil futures were last down $1.04 at $68.15 a barrel, ahead of weekly inventories dat on Wednesday and amid concerns that refinery utilization is running low.
The August gold contract dropped $8.20 to $643.70 an ounce.
The yen overnight managed to strengthen against its major rivals after Japanese Finance Minister Omi said he is "watching foreign exchange rate moves very closely", which finally signals some sort of preoccupation by Japanese officials regarding their damaged currency, according to Ashraf Laidi, a currency analyst at CMC Markets.
The dollar last was down 0.4% against the yen and up slightly against the euro.
By Nick Godt