US stocks declined on Wednesday after Federal Reserve Chairman Ben Bernanke said a recession was possible, spurring profit-taking a day after the market's biggest rally in two weeks. General Electric and IBM, which are sensitive to the economic outlook, were among the biggest drags on major indexes.
In the previous session, stocks rose 3 percent on investor optimism that the worst may be over for the banking sector. Testifying before a congressional committee, Bernanke conceded for the first time the US economy may slip into recession, but he said growth should pick up later this year as interest-rate cuts and other emergency steps take root.
"Bernanke's testimony was maybe a little bit more bearish on the economy than what some investors had expected. Nobody can be surprised, but he described that a recession was in the realm of possibility, and I think that probably set the stage," said Fred Dickson, market strategist and director of retail research at D.A. Davidson & Co, in Lake Oswego, Oregon.
The Dow Jones industrial average was down 45.44 points, or 0.36 percent, at 12,608.92. The Standard & Poor's 500 Index was down 2.65 points, or 0.19 percent, at 1,367.53. The Nasdaq Composite Index was down 1.35 points, or 0.06 percent, at 2,361.40.
"Today the enthusiasm is definitely tempered and proving once again it's hard to maintain a market follow through coming off 300-plus point moves in the Dow," he said.
Adding to concerns about economic growth, oil prices rose 3 percent on news that gasoline supplies fell sharply. On the Nasdaq, shares of Apple Inc dipped 1.4 percent to $147.49 after analysts said the iPhone was in short supply at many of Apple's US stores.
US crude oil rose $3.85, or 3.81 percent, to settle at $104.83 a barrel. While the jump is viewed as negative for the overall stock market, it lifted shares of energy companies. Exxon Mobil's shares rose 1.7 percent to $88.52.
Shares of GE fell 1.1 percent to $38.02 while International Business Machines slid 1.4 percent to $114.81. Among gainers, Best Buy Co Inc rose 1.1 percent to $43.94. The No 1 consumer electronics chain reported quarterly earnings and revenues that topped analysts' expectations and forecast earnings to rise over the coming year, a possible sign that consumer spending was on stable ground.
On Tuesday, all three major US stock indexes surged as strong demand for a Lehman Brothers share offering quelled fears it was headed toward a fate similar to Bear Stearns and raised optimism that the worst of the credit crisis may be over.
Volume was moderate on the New York Stock Exchange, where about 1.44 billion shares changed hands, below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 2.05 billion shares traded, slightly below last year's daily average of about 2.17 billion.
Despite the market's late slide and lower finish, its breadth remained positive. Advancers outnumbered decliners by a ratio of about 3 to 2 on the NYSE, while on the Nasdaq, about 15 stocks rose for every 13 that fell.
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