Economic Data Weigh on Stocks

Updated from 1:37 p.m. EDT

Stocks in the U.S. continued to churn in murky action Tuesday as traders digested home-sales data that was as bad as expected, encouraging consumer confidence reports and hawkish notes from an August Fed meeting.

Lately, however, the major indices were slumping lower. The Dow Jones Industrial Average was down 34 points at 11,352, and the S&P 500 lost 2.8 points to 1,264. The Nasdaq was shedding 18 points at 2,348.

Investors continued to wring their hands over the previous day's reports of a potential takeout of Lehman Brothers (LEH Quote), whose exposure to bad credit has left its stock on the ropes and management facing questions about its strategy.

Fitch's worries about insurance giant AIG (AIG Quote) and investment losses at JPMorgan Chase (JPM Quote) also hurt sentiment in the previous session.

The angst over U.S. financial institutions persisted Tuesday. The Wall Street Journal reported that federal regulators have sent "memorandums of understanding," documents that can force banks to raise capital or reduce exposure to high-risk assets, to as many as six banks, including National City (NCC Quote), Imperial Capital (IMP Quote), First State (FSNM Quote) and BankUnited Financial (BKUNA Quote).

The memorandums represent efforts by the Federal Reserve and the Office of the Comptroller of the Currency to head off failures, the report said. Nine banks have failed this year, and five of those have gone under since mid-July. The most recent casualty occurred last week, when a Kansas bank was shut down.

In the technology space, PC maker Hewlett-Packard (HPQ Quote) has completed its purchase of Electronic Data Systems (EDS Quote). H-P had announced the $13.3 billion deal in May.