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Stocks close flat after Bernanke remarks

Stocks cut their losses to finish flat in choppy trading Tuesday, but Fed Chairman Ben Bernanke's negative comments on the looming "fiscal cliff" put a damper on gains.

"[The Fed] can certainly have a meaningful contribution to supporting recovery, but in the worst case scenario where the economy goes off the broad fiscal cliff, which according to CBO and to our own analysis, the Fed [doesn't have the] tools to offset that," said Bernanke at the Economic Club in New York. "So it's important for congress to address the fiscal issues soon."

The Dow Jones Industrial Average slipped 7.45 points, or 0.06 percent, to close at 12,788.51, led by H-P . Bank of America led the blue-chip gainers.

The S&P 500 eked out a gain of 0.92 points, or 0.07 percent, to end at 1,387.81. The Nasdaq gained 0.61 points, or 0.02 percent, to finish at 2,916.68.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, traded above 15.

Among key S&P sectors, techs and energy lagged, while health care rose.

Federal Reserve Chairman Ben Bernanke said the “fiscal cliff” poses a threat to the economic recovery, but outlined no further stimulative measures. He also said the budget situation is already hurting the economy and urged Congress to raise the debt ceiling to avoid a “catastrophic default” on the nation’s debt obligations.

“We’re going to get a deal eventually, but the deal will be horrible for the economy,” said Uri Landesman, president of Platinum Partners. “I’m pretty negative going forward—on a technical basis, you could have a rally, but we’re headed much lower because the market’s been extended for the last 4-1/2 months.”

Stocks logged their biggest rally in two months in the previous session, boosted by optimism for a "fiscal cliff" deal, a series of tax and spending changes next year that could push the economy into recession.

On the economic front, housing starts gained 3.6 percent to a seasonally-adjusted 894,000, hitting its highest rate in more than four years, according to the Commerce Department. Meanwhile, permits slipped 2.7 percent. Pulte , DRHorton and Lennar gained.

Among earnings, H-P reported earnings that beat expectations, but only after excluding a huge accounting charge relating to allegations of fraud tied to the acquisition of its Autonomy software unit. Shares plunged sharply to their lowest level in nearly 10 years. At least two brokerages downgraded their rating on the stock. 

Best Buy tumbled after the troubled consumer-electronics retailer posted earnings that badly missed previously-lowered estimates, while revenue was slightly better than expectations.

Campbell Soup declined after the canned soup maker posted lower quarterly earnings, hurt by charges related to its recent acquisition of Bolthouse Farms, but it reaffirmed its full-year forecast.

Salesforce.com is scheduled to post earnings after the closing bell.

Research In Motion climbed after Jefferies raised its rating on the BlackBerry maker to "hold" from "underperform" ahead of the smartphone maker's BlackBerry 10 launch.

News Corp said it will acquire a 49-percent stake in the YES Network, the New York Yankees' regional cable sports channel.

European shares ended in positive territory ahead of the expected euro zone approval of the next aid tranche for Greece.

Meanwhile, ratings agency Moody’s Investor Service stripped France of its triple-A credit rating and placed it on negative outlook. Markets saw Moody’s move as heightening the risk of other triple-A-rated countries such as Germany and the U.S. being downgraded.