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Stocks close mixed as Cyprus crisis continues

Stocks cut their losses in the final hour of trading to close narrowly mixed Tuesday, after lawmakers in Cyprus ov The Dow Jones Industrial Average squeezed out a gain of 3.76 points to finish at 14,455.82, avoiding its first three-day losing streak this year. The Dow remains on track for its best first quarter percentage gain since 1998.

The S&P 500 dipped 3.76 points, or 0.24 percent, to end at 1,548.34. The Nasdaq declined 8.50 points to close at 3,229.10.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped above 14.

Among key S&P sectors, consumer staples closed modestly higher, while energy slumped.

Cyprus's parliament rejected a tax on bank deposits as conditions of an international bailout. Thirty six members voted against the proposal, 19 abstained and no one voted in favor of it.

Meanwhile, the finance minister of Cyprus Michael Sarris offered to resign, but the president rejected the resignation, sources told CNBC. In addition, unconfirmed rumors swirled that Cyprus will leave the euro zone if the bill does not pass.

The country's banks remained closed and trade on the island's stock exchange was also suspended till Thursday.

"No one has any confidence – we've been battered around an awful lot," said John Manley, chief equity strategist at Wells Fargo Advantage Funds. "If we learned anything in the last couple of months, we have more risk than we thought we actually had, except some of that risk was to the upside so I think we've become a bit agnostic as we come into this moment in time."

The euro fell below $1.29, briefly hitting its lowest level since November 2012.

(Read More: Tiny Cyprus = Big Market Impact)

"It is an explosive political situation," Nick Spiro, head of Spiro Sovereign Strategy, told CNBC. "This is a rubicon which should have never been crossed...This bailout agreement has Germany's political fingerprints all over it."

European shares finished in the red on the uncertainty over the bailout, but Asian shares recovered some ground after Monday's sell-off.

(Read More: 'Be Bullish:' Meredith Whitney)

On the economic front, housing starts gained 0.8 percent in February to a 917,000-unit annual rate, while new permits for construction jumped to the highest level since 2008, according to the Commerce Department. Economists had expected a reading of 915,000.

Most homebuilders traded higher following the report, including KB Home and Toll Brothers.

Meanwhile, the Federal Reserve's Open Market Committee starts its two-day meeting and investors will be watching for any signs that the central bank could start winding down its quantitative easing program. A decision will follow on Wednesday afternoon.

(Read More: Fed to Remain Wall Street's Sugar Daddy: CNBC Survey)

Among earnings, DSW declined after footwear retailer missed earnings and revenue expectations.

Walgreen rallied after drug distributor AmerisourceBergen signed a 10-year distribution contract with the drugstore chain and associate Alliance Boots GmbH. Meanwhile, Cardinal Health, which used to be the primary branded drug provider to Walgreen, dropped sharply following the news. In addition, Walgreen posted better-than-expected earnings, helped by improved gross margins.

Adobe Systems and Cintas are among notable companies slated to post earnings after the closing bell.

Skullcandy soared after the headphone maker appointed former Nike executive Hoby Darling as its new CEO. Meanwhile, Electronic Arts dropped to lead the S&P 500 laggard after the videogame publisher's CEO resigned, saying he held himself accountable for missed targets. Meanwhile, Stifel raised its price target on EA to $12 from $17, while Needham cut its rating on the stock to "hold" from "buy."

Lululemon tumbled after the yoga-apparel maker said it will withdraw shipments of unexpectedly sheer women's yoga pants from its stores. The company said the move will likely affect its bottom line. In addition, at least six brokerages lowered their price target on the firm.

(Read More:See-Through or Not, LULU a 'Buy': Pro)

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter:@JeeYeonParkCNBC)