Blue-chip stocks ended in negative territory as investors held their breath ahead of the Federal Reserve's interest-rate cut, expected for Wednesday.
The Dow Jones industrial average ended down 31.71 points at 10,472.48 after plunging more than 100 points in morning trading. Profit warnings from No. 1 brokerage Merrill Lynch and chip maker Applied Micro Circuits Corp. weighed heavily on the index, which staged a semi-turnaround in the afternoon before retreating.
The Nasdaq Composite Index gained 13.73 at 2,064.60. The broader Standard & Poor's 500 Index ended down 1.84 point to 1,216.76.
The Fed kicked off a two-day, policy-setting meeting, which is expected to generate at least a quarter-percentage point cut in interest rates. But investors are hoping the central bank will fire off another half-percentage point reduction when the meeting ends Wednesday afternoon -- its sixth such move this year -- to spur growth.
But with a cut widely anticipated and the Fed seen nearing the end of its rate-lowering cycle, even a hefty cut may not be enough to give the market a lasting boost.
``Until we get past these confessions, there is no catalyst to spark investors. It's a matter of slogging your way through,'' said Larry Wachtel, a market analyst at Prudential Securities. ``There is nothing around that's going to change the day-to-day psychology. The psychology is defensive, the psychology is show me -- show me something that is going to change the pattern around.''
The market punished the latest companies to announce profit warnings, including Merrill Lynch, down $7.54 at $58.91. The brokerage warned that second-quarter profits have suffered sluggish equity volume and will be 52 cents to 57 cents a share, missing the 82 cents a share Wall Street had expected. Merrill Lynch also said it has cut 3,300 jobs this year.
Outback Steakhouse fell 70 cents to $27.25 after announcing it will miss analysts' second-quarter earnings expectation of 52 cents a share.
Technology issues fared a little better. Microsoft rose $1.23 to $70.08, while Intel advanced 39 cents to $28.97. Both helped to curb the Dow's loss.
The market since late May has been steadily giving back from its big spring rally, which grew out of hopes that the economy would improve in the second half of 2001.
Analysts say stocks rallied too much and too soon. Although the earnings outlook didn't improve, the Nasdaq composite index soared as high as 41 percent from its lowest close of the year, which was 1,638.80 registered on April 4. And, the Dow rose much as 20.8 percent from its lowest close - 9,389.48 on March 22.
``We reached a point when the market was fully priced. And when the stock market is fully priced, everything has to go right,'' said Johnson, of First Albany. ''(Instead), lots and lots of companies are telling us business, sales and earnings are still dismal, and they see no improvement.''
Investors, overloaded by proof of how widespread the business slump is, all but ignored two stronger-than-expected reports on the economy.
Wall Street was seemingly unimpressed that consumer confidence rose for the second straight month in June. The New York-based Conference Board said its Consumer Confidence Index rose to 117.9, better than what analysts were expecting.
The market also looked past the fact that orders to U.S. factories for costly manufactured goods jumped 2.9 percent in May, easily beating the 0.4 percent rise many analysts were expecting thanks to an expecially strong increase in the demand for cars and semiconductors.
Declining issues outnumbered advancers nearly 3 to 2 on the New York Stock Exchange where volume was 1.19 billion shares, compared with 1.03 billion on Monday.
Smaller companies fared better with the Russell 2000 index rising 6.63 to 490.82. Analysts have said smaller companies stand to benefit most from lower interest rates.
Overseas, Japan's Nikkei stock ended Tuesday up 0.6 percent, but stocks in Europe were lower. Germany's DAX index fell 1.0 percent, Britain's FT-SE 100 declined 1.9 percent, and France's CAC-40 dropped 2.4 percent.
-- Reuters and the Associated Press contributed to this report.