Stocks eased off their highs in the final minutes of trading to close mixed on Tuesday, with the Dow logging its fifth-straight losing day. But losses were limited as bond yields receded from two-year highs.
Investors also awaited further indications over the timing of the Federal Reserve's widely expected reduction in asset purchases.
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The Dow Jones Industrial Average turned lower in the final minutes of trading to finish 7 points in the red. Home Depot led the blue-chip laggards.
The S&P 500 and the Nasdaq both slightly finished higher. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, finished below 15.
The Dow and S&P 500 are on pace for their worst month since May 2012.
Among key S&P sectors, consumer discretionary and financials led the gainers, while consumer staples finished slightly lower.
With no major economic news, investors have been focusing on when the Federal Reserve will start scaling back its stimulus effort. The yield on the 10-year Treasury note slipped near 2.83 percent after hitting a fresh two-year high of 2.90 percent on Monday.
"If you buy bond funds now, you're guaranteed to lose money whereas if you buy stocks, you still have a chance to make money," said Dan Veru, CIO of Palisade Capital Management. "We're going through this adjustment period of rates coming back up and that process can sometimes create headwinds for the market. And given we had no significant pullbacks for the market this year, we could be vulnerable to some setbacks."
Global markets took a hit from worries about reduced Fed stimulus. European markets were lower across the board.
In Asia, emerging market stocks extended their sharp losses. Indonesia's Jakarta Composite fell nearly 5 percent, placing it in bear market territory, having lost approximately 22 percent from May's all-time record high. And Thailand's benchmark SET Index dropped nearly 3 percent.
(Read more:First India, then Indonesia... who is next?)
Japan's Nikkei closed at a near two-month low and China's Shanghai Composite fell 0.6 percent.
"The market did an excellent job of ignoring the overseas market damage this morning," wrote Elliot Spar, market strategist at Stifel Nicolaus. "If the market can have strong close today, my upside target is the gap at 1,685 on the S&P. We really don't want to get there too fast. Many damaged sectors and names need time to repair themselves. A rally in the S&P back to the recent high at 1,709 that is accompanied by numerous negative divergences would not be healthy for the market."
Meanwhile, several retailers bucked the recent downbeat earnings trend. Best Buy surged to lead the S&P 500 gainers after the consumer electronics retailer easily topped Wall Street expectations.
Urban Outfitters soared after the specialty retailer posted earnings that beat expectations. At least four brokerages lifted their price targets on the company.
JCPenney posted sales that continued to fall sharply last quarter, but the troubled retailer said the back-to-school season has so far been "encouraging." The company also said sales trend had improved every month in the quarter. Shares traded higher.
And Dow component Home Depot posted second quarter earnings that topped expectations and raise its full-year guidance, citing the rebounding housing market.
(Read more:Cramer: Once hated,these retailers will go higher)
First published August 20 2013, 1:12 PM