Stocks Pare Losses, Finish Down 1%

NEW YORK (TheStreet) -- Stocks bounced off earlier lows but still closed down more than 1% as investors weighed positive comments about the state of the economy made by the Fed against continued fears over Japan's escalating nuclear crisis.

The Dow Jones Industrial Average shed 138 points, or 1.2%, at 11,855. The S&P 500 slid 15 points, or 1.1%, at 1,282. The Nasdaq sunk 34 points, or 1.3%, at 2,667. Earlier the Nasdaq fell nearly 3% to 2,618, wiping out gains for 2011.

"The current geo-political environment and demand reduction as a result of events in Japan, will cause a mild slow down in global GDP growth," said Oliver Pursche, president of Gary Goldberg Financial Services and GMG Defensive Beta Fund Co-Portfolio Manager. "As such, we believe that the U.S. Federal Reserve as well as the ECB (European Central Bank) will take this expected slowdown into consideration and will continue to emphasize the risks of deflation and a significant slowdown in the world's economies over the risks of inflation. Therefore, we do not believe there is a material risk of either central bank changing monetary policy over the coming two quarters."

The Fukushima Dai-ichi nuclear-power complex in Japan suffered a third explosion and a fire Tuesday. Japanese officials warned that a critical reactor container, which keeps radioactive materials from leaking, may have been damaged.

Radiation levels in Northeast Japan spiked after the incidents, with authorities ordering all who lived within 19-miles from the plant to stay indoors. Radiation levels in Tokyo also rose, but remained below limits that could cause immediate harm to humans.

Already reeling from the impact of the massive earthquake and tsunami on Friday -- the country is still experiencing aftershocks -- Japanese stocks nosedived nearly 11% Tuesday. Hong Kong's Hang Seng Index dropped 2.8%, and Taiwan's Taiex sank 3.3%.

In Europe, Germany's Dax plunged 3.4%. The FTSE in the U.K. shed 1.5%.

John Canally, economist at LPL Financial, said that investors in the U.S. were using Japan as an excuse to book profits after the steep run up in stocks. "At the end of this, no one is going to say this is what dipped the world back into a recession. No one expected much out of Japan before this," said Canally. "The problem is emerging market. If this slows emerging market growth enough, that could be an issue."

Shares of General Electric (GE) helped lead the Dow decline, settling 1% lower at $19.72 Tuesday. GE designed the reactors used at the damaged Fukushima Dai-ichi nuclear power plant in Japan.

Intel (INTC), 3M (MMM), United Technologies (UTX) and Cisco (CSCO) were also among the top losers on the Dow. All components settled in the red, with the exception of Chevron (CVX), which rose 0.4% to $101.23 after the Wall Street Journal reported that the oil giant was shipping crude oil from Indonesia to power plants south of Toyko.

ADRs of Japanese companies ended Tuesday's trading session mixed after being under pressure in the aftermath of the earthquake and tsunami. The stock of Hitachi (HIT) rose 0.1% to $50.01 at the closing bell. The stock of Toyota (TM) lost 0.4% to $81.39.

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