Before the open, better-than-expected economic data on consumer prices and housing helped soothe market concerns over inflation and a slowing economy.
The Dow Jones Industrial Average last was down 2 points at 12,717, as 21 of its 30 components dropped.
The S&P 500 fell 0.3 points to 1,468 , while the Nasdaq Composite fell 4.7 points to 2,513.
The technology sector will come into focus after the close, when International Business Machines Corp. , Intel Corp. and Yahoo Inc. are all scheduled to report.
On Monday stocks staged a vigorous rally, with the Dow Jones industrials rising by more than 100 points, in the wake of upbeat earnings from Citigroup Inc. and a $25 billion leveraged buyout of Sallie Mae parent company SLM Corp. .
Investors on Tuesday will continue to mull earnings news and new data.
"Core rate CPI was better than expected," said Peter Cardillo, chief market analyst at S.W. Bach. "But it has advanced somewhat in the past year and is somewhat above the Federal Reserve's comfort zone."
"The market is going to trade higher and it is going to focus on earnings," he said. "However, I also believe we are approaching market levels that are not sustainable, due to inflation pressures that are starting to creep in not only in the States but abroad."
The pound sterling rose above $2 overnight on unexpectedly brisk U.K. inflation data.
The Labor Department said that the rate of headline inflation accelerated in March, although the core rate, which excludes food and energy prices, was tame. The consumer price index increased 0.6% in March, driven by a 5.9% gain in energy prices, the fastest increase in energy prices in more than two years.
The core CPI, which excludes food and energy, was up 0.1% in March. It was the lowest level since December. Economists were expecting the CPI to rise 0.7% in March after a 0.4% gain in February.
Other data showed unexpected strength in the struggling residential construction market. Boosted by warmer weather, construction of new homes increased 0.8% in March to a seasonally adjusted annual rate of 1.518 million, the highest level this year, according to the Commerce Department.
MarketWatch had expected 1.50 million housing starts. There were 1.544 building permits; MarketWatch had expected 1.52 million permits.
And separately, industrial production fell 0.2% in March, held back by a 7% decline in utility output due to warmer weather, the Federal Reserve said Tuesday. Capacity utilization - a key gauge of inflationary pressures - fell to 81.4% from a revised 81.6%.The figures were weaker than forecast by economists surveyed by MarketWatch, who were looking for a 0.1% drop in output and utilization rate of 81.8%.
Stocks in action
Coca-Cola Co. stock rose 1.7%. The soft drinks seller's earnings and revenue beat analysts' expectations, bolstered by unit case volume growth.
Johnson & Johnson also beat expectations for its earnings and revenue, although its profit fell below year-earlier levels due to special charges. The stock gained 3.2%.
A host of financial companies delivered their results early Tuesday, including Wells Fargo & Co. , which rose 0.1%.
The bank said its first quarter profit rose 11% to $2.24 billion, or 66 cents a share, compared to $2.02 billion, or 60 cents a share a year ago. Revenue rose to $9.44 billion from $8.56 billion last year. Analysts polled by Thomson First Call had, on average, expected the company to earn 65 cents a share.
Mellon Financial Corp. reported that its first-quarter net income climbed to 60 cents a share, up 20% from a year ago. Results included $8 million in expenses from its proposed Bank of New York merger nd a $12 million litigation reserve charge. The company earned 58 cents a share on a continuing operations basis, matching forecasts.
TD Ameritrade slumped 7.9% after the online broker reported first-quarter earnings that fell below expectations, and lowered its outlook.
Key Corp. said first-quarter net income rose to $350 million, or 87 cents a share, from 70 cents a share, a year ago. In terms of continuing operations, earnings per share were 89 cents, well clear of the consensus analyst forecast of 71 cents. The stock dropped 5.8%.
The British pound topped the $2 mark for the first time in 15 years on Tuesday, climbing over a landmark threshold after a report showed hotter-than-expected U.K. inflation, stoking speculation the Bank of England will hike interest rates next month.
The pound was last up 0.8% at $2.0047. The euro was up 0.3% at $1.3565, and the dollar was down 0.4% at 119.35 yen.
Treasurys benefited from the tame reading on core consumer inflation. The benchmark 10-year note last was up 8/32 at 99-12/32 with a yield of 4.707%.
Crude-oil futures edged up early Tuesday, underpinned by worries over problems at U.S. refineries and declining gasoline supplies ahead of the summer driving season.
Crude oil for May delivery rose 41 cents at $64.02 a barrel in electronic trading.
Gold futures fell Tuesday, as traders locked in some gains after the precious metal hit a seven-week high near $695 an ounce in the previous session. Gold for June delivery edged down 40 cents at $694.10 an ounce on the New York Mercantile Exchange.
By Leslie Wines