An economic reality check is putting the stock market rally back on hold.
Stocks ended mixed but little changed as unease over a weak consumer confidence was offset by an improvement in home prices. The Conference Board said confidence declined more than expected in July.
Investors worried that consumers' waning confidence and the rising unemployment rate would hamper the economy's ability to rebound from the longest recession since World War II. Decent demand at a government debt auction helped stocks pare their losses.
The Dow Jones industrial average fell 11.79, or 0.1%, to 9,096.72 after being down as much as 101 points. The broader Standard & Poor's 500 index fell 2.56, or 0.3%, to 979.62. The Nasdaq composite index rose 7.62, or 0.4%, to 1,975.51 after several technology companies announced acquisitions
If consumers don't step up spending, companies will find it hard to boost revenue. The recent string of stronger corporate profits have come from deep cost-cutting, which can only be used to lift earnings for so long.
But even without the consumer confidence report, analysts have been anticipating some pullback after the market soared 11% in just two weeks on surprisingly strong corporate profit reports. The latest run restarted a rally that began in March but faltered in mid-June on lackluster economic data.
Corporate earnings reports were mixed and left investors cautious. Office Depot said its second-quarter loss widened and results fell short of analysts' expectations and luxury handbag maker Coach said shoppers showed up at factory outlet stores but held off buying pricier items at U.S. department stores.
The third upbeat reading on the housing market since last week helped temper the market's disappointment. The S&P/Case-Shiller Home Price index indicated that home prices posted their first monthly increase since the summer of 2006. Prices in major metropolitan markets rose 0.5% in May from April.
The report is the latest since last week to signal that home sales are stabilizing.
Adam Gould, senior portfolio manager at Direxion Funds in New York, said the recent earnings and economic data had lifted investors' expectations too quickly.
"The sentiment has changed from expecting the worst a couple of weeks ago and being pleasantly surprised to expecting good things now and being disappointed," he said.
Four stocks fell for every two that rose on the New York Stock Exchange, where volume came to 694.6 million shares, compared with 574 million shares traded at the same point Monday.
Investors were relieved after a Treasury Department auction of two-year notes generated sufficient demand. The yield on the two-year note, which moves opposite its price, rose to 1.08% from 1.05% late Monday. The yield on the benchmark 10-year Treasury note fell to 3.70% from 3.73%.
Investors are anxious about government debt auctions because if demand falters Washington could have to entice buyers with higher interest rates. That could hurt an economic rebound.
On Monday, stocks posted small gains after investors grappled with mixed earnings and economic reports. The market also logged a modest advance Friday.
Even with the selling Tuesday the stock market's rally appears intact. That is a sign that even many cautious investors aren't willing to pull out of stocks for fear of missing another leg of the rally.
"There is uncertainty about how fast the rally can go and how far it can go," said Robert Phillips, a managing director at Spectrum Management Group of Raymond James & Associates.
Earnings results tempered investors' optimism. Office Depot said consumers and small businesses continued to pare spending, especially on pricier items like furniture and computers. The office-supply chain tumbled 97 cents, or 18.1%, to $4.38.
Coach fell 38 cents, or 1.3%, to $28.05 after the company reported that its fiscal fourth-quarter earnings dropped 32%.
Not all corporate news was downbeat. Textron jumped $1.96, or 17.6%, to $13.11 after the maker of Cessna planes, Bell helicopters and turf maintenance equipment posted a profit excluding charges. Analysts had expected a loss.
Investors welcomed dealmaking in the tech industry. The willingness of companies to pursue rivals is seen as a sign of confidence in the economy.
IBM agreed to acquire software maker SPSS for $1.2 billion. SPSS jumped $14.36, or 40.9%, to $49.45, while IBM slipped 35 cents to $117.28.
Sprint Nextel intensified its focus on the market for prepaid cellphone service by announcing a $483 million agreement to scoop up Virgin Mobile USA. Virgin Mobile rose $1.07, or 25.4%, to $5.28 and Sprint edged down 4 cents to $4.59.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell $1.15 to $67.23 a barrel on the New York Mercantile Exchange. The drop in oil hit a range of energy stocks.
The Russell 2000 index of smaller companies fell 1.07, or 0.2%, to 551.95.
Overseas, Britain's FTSE 100 fell 1.3%, Germany's DAX index lost 1.5%, and France's CAC-40 slid 1.2%. Japan's Nikkei stock average slipped less than 0.1%.