Investors bruised by Wall Street's latest rout found little reason to pile back into the market.
Stocks extended their losses to a fifth straight day Tuesday as investors wrestled with the reality that the economy is still far from recovery. The pessimism that has dominated the markets for months stifled some tentative bargain hunting and in the process unraveled several attempts at a rally.
The selling in the erratic session pushed the Standard & Poor's 500 index to its first close below 700 since Oct. 28, 1996. But the losses were modest compared with Monday, when the Dow Jones industrial average tumbled 300 points and both the Dow and the S&P 500 index registered their lowest finishes in more than a decade.
Tuesday's fluctuations came as Federal Reserve Chairman Ben Bernanke told Congress an economic recovery depends on the government's ability to stabilize weak financial markets. He said the efforts were needed to avoid "a prolonged episode of economic stagnation."
Investors who have been selling for weeks are still worried that Washington won't succeed. On Monday, the government injected $30 billion to troubled insurer American International Group Inc., its fourth attempt to stabilize the company since September. And last Friday, Citigroup Inc. got more help from the government.
"Where is there light at the end of any of these bailout tunnels?" said Linda Duessel, market strategist at Federated Investors in Pittsburgh.
She said the market will continue to slide because investors can't find a reason to rally, even as stocks are at levels that many on the Street regard as bargains.
"The 600 to 660 range looks like a pretty good bet right now," she said, referring to the S&P 500 index, which finished at 696 Tuesday. "There is a dearth of buyers."
In Tuesday's trading, the Dow fell 37.27, or 0.6 percent, to 6,726.02, its lowest close since April 21, 1997. The index is now down more than 52 percent from its record of 14,164.53 set in October 2007.
Broader stock indicators also fell. The S&P 500 index slid 4.49, or 0.6 percent, to 696.33. The Nasdaq composite index fell a modest 1.84, or 0.1 percent, to 1,321.01.
The Russell 2000 index of smaller companies fell 6.79, or 1.9 percent, to 361.01.
Two stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 7.41 billion shares compared with 7.71 billion shares traded Monday.
Bernanke's remarks came as the central bank announced it would begin lending up to $200 billion in an initial move to spur consumer and small business borrowing for autos, education, credit cards and other expenses. The Fed first announced the plan late last year.
That helped curb selling, traders said.
"I think people are just finally happy to see that it's here and that it's going to begin," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
Investors showed little reaction to testimony from Treasury Secretary Timothy Geithner, who told the House Ways and Means Committee the added spending in the Obama administration's budget is necessary because the previous administration was unwilling to make long-term investments in health care, energy and education.
President Barack Obama on Tuesday likened the stock market's behavior to the daily tracking polls used during campaigns. He said tracking Wall Street's "fits and starts" too closely could lead to bad long-term policy.
Many investors remain fearful of buying into a market that has dashed investors' hopes that it had hit bottom. Last week, the Dow and the S&P 500 index fell through their November lows and, with their continuing pullback, are touching off fears that a new torrent of selling will take place.
Brian Reynolds, chief market strategist at New York-based WJB Capital Group, said the market's slide means it could be ripe for a bounce but that a lasting recovery won't come until credit market investors begin to put money into riskier debt that is now out of favor. Investors worried about the bad debt hammering banks have been buying the safest types of debt, like government bonds, rather than mortgage and credit card debt and some corporate debt.
"It's just another continuation of what we've seen for the last year and a half," Reynolds said.
He contends the S&P 500 index, which is down 22.9 percent in 2009, will fall to the 600 level. That would be a drop of more than 60 percent from the index's record close of 1,565.15 in October 2007.
Investors are awaiting the Labor Department's February employment report, which is due Friday. The monthly employment figures are one of the most important economic barometers because rising unemployment cuts into how much consumers spend. Consumer spending accounts for more than two-thirds of U.S. economic activity.
Government bonds were mixed Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.89 percent from 2.87 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.26 percent from 0.27 percent from Monday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose $1.50 to settle at $41.65 a barrel on the New York Mercantile Exchange.
Overseas, Britain's FTSE 100 fell 3.14 percent, Germany's DAX index fell 0.52 percent, and France's CAC-40 fell 1.04 percent. Japan's Nikkei stock average slipped 0.69 percent.