The recent near collapse of two hedge funds owned by Bear Stearns Cos. Inc. with heavy exposure to the subprime market has made investors more adverse to risk taking in recent sessions.
"The market remains in a very nervous state," said Peter Cardillo, chief U.S. market economist at Avalon Partners. "Bailing out hedge funds is not good news for the market, so the pullback is still intact and its run has to continue for now."
The Dow Jones Industrial Average was down 44 points at 13,292, as 22 of its 30 stocks retreated, led by the likes of Alcoa Inc. , General Motors Corp. , Boeing Co. , and Citigroup Inc. .
The S&P 500 index fell 4.8 points to 1,488, while the Nasdaq Composite lost 1.7 points to 2,573.
Bucking the trend among technology shares, Oracle Corp. gained 2%. The company quarterly earnings before special items beat expectations, as did its revenue. The profit was 23% above the year-earlier level.
In a sign of economic weakness, the Commerce Department reported that durable goods orders last month dropped by 2.8%, far exceeding the fall of 1.7% predicated by MarketWatch, amid a 22.7% decline in civilian aircraft orders.
The report's details showed orders for U.S.-made investment goods dropped 3% in May, ending a brief rebound in businesses' capital spending. The figures undercut the theory that business investment would be robust enough to power the U.S. economy out of a slow patch that's lasted more than a year.
The Federal Reserve, which started a two-day meeting on interest rates, is widely expected to leave rates unchanged at 5.25%, on Thursday. But investors will parse the accompanying statement for clues about whether a rate increase or cut could be in store in coming months.
Stocks on the move
Nike Inc. gained 2%. The company's fourth-quarter earnings were in line with analysts' expectations, while revenue was a bit above forecast.
Wells Fargo & Co. fell 0.4% The bank has named John Stumpf CEO to replacing Dick Kovacevich, who will retain his chairman's post.
Dow Jones & Co. Inc. , the publisher of this report, remains in the news. News Corp. . Chairman Rupert Murdoch was quoted in a media report saying that he has no plans to raise his $5 billion bid for Dow Jones. He expects Dow Jones controlling shareholders, the Bancroft family, to either approve the deal "in the next two, three weeks' time or not at all," Reuters quoted him as saying.
On Tuesday the company's talks with News Corp moved ahead as both sides reached a preliminary understanding on a deal to protect the editorial integrity of The Wall Street Journal.
There's a new privae-equity deal. Guitar Center Inc. agreed to be bought by affiliates of Bain Capital Partners LLC, a private investment company, for about $2.1 billion.
Treasurys rallied after the weaker-than-expected durable goods report, which adds fuel to the case that the Fed can afford to cut rates, a move the bond market would like to see. "The bond-friendly durables plunge sent yields sharply lower to fresh session lows," said Action Economics.
The benchmark 10-year Treasury note last was up 9/32 at 95-26/32 with a yield of 5.046%.
The durable goods data was negative for the dollar, as it decreases the chances for a Fed rate hike which would make the currency more attractive against its major rivals. The dollar last was 0.5% lower at 122.37 yen, as the euro fell 0.08% to $1.3436.
Crude trending lower ahead of data expected to show increases in energy inventories in the latest week. The August contract last was off 39 cents at $67.38 a barrel.
Gold futures were pressured by the exanding risk-aversion trade, as the August contract gave up 10 cents to $645.20 an ounce.
By Leslie Wines