Updated from 3:46 p.m. EDT

Financial stocks fell, and the major indices in New York closed mixed Wednesday as some banks were downgraded, others paid back TARP money and all might be subject to a new regulatory system.

The

Dow Jones Industrial Average

was down 7.5 points, or 0.09% at 8497.18, and the

S&P 500

lost 1.26 points, or 0.1%, to 910.71. The

Nasdaq

, however, was higher by 11.88 points, or 0.7%, at 1808.06.

Wednesday's session followed the biggest two-day point drop in the Dow Jones Industrial Average since March 30, which equated to a 3.4% haircut.

"I think you've seen there's more people that are sensing things have gone too far too fast, and some people have taken some chips off the table the last few days," says Michael James, managing director at Wedbush Morgan Securities. "The burden of proof right now is on the bulls. We've been in an uptrending range, and every move down towards the lower end of that range has been a buying opportunity -- we won't know for a week or so whether this is similar."

Consumer stocks were on the rise, while industrials, financials and energy stocks underperformed.

Home Depot

(HD) - Get Report

and

Pfizer

(PFE) - Get Report

were the best performers on the Dow, gaining 1.9% and 3%, respectively.

Alcoa

(AA) - Get Report

and

General Electric

(GE) - Get Report

were the biggest percentage losers on the index, shedding 3.8% and 4.2%, respectively.

Financials were in focus as some banks suffered a downgrade, others paid back TARP money, and Wall Street sifted through

reports

on the Obama administration's proposal for significant changes to the financial regulatory system.

The regulatory proposal would abolish the Office of Thrift Supervision and establish a new national regulator for financial institutions, while giving the

Federal Reserve

the ability to oversee almost any financial company. It would also give the government the power to take over and wind down a large financial company if that company is battling collapse.

"You're not getting a real idea of what they're proposing, as at this point it's more of a rearranging deck chairs," says Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. "There's a new regulatory apparatus, but we're not sure what they're going to do."

Moreover, regulators didn't catch the problems that caused the crises in the first place, "so adding another layer doesn't mean so much as what they will do," Roberts says. But he expects that this, like other changes brought by the current administration, will be released in stages, "and this is just stage one."

Elsewhere, Standard & Poor's cut its ratings and revised its outlook on 22 banks, including

Regions Financial

(RF) - Get Report

,

Wells Fargo

(WFC) - Get Report

,

Capital One Financial

(COF) - Get Report

and

PNC

(PNC) - Get Report

.

At the same time,

JPMorgan Chase

(JPM) - Get Report

,

Goldman Sachs

(GS) - Get Report

,

(MS) - Get Report

and Capital One Financial all said they are paying back TARP money.

Market watchers also had the latest reading on the most widely cited gauge of inflation to dissect.

The consumer price index increased 0.1% in May, below expectations for an 0.3% hike and up from no change the month prior. The core rate, which excludes food and energy, also rose by 0.1%, which was in line with expectations.

Those data, although retrospective, suggest inflation is still in check. Corporate news, however, wasn't exactly sunny.

E*Trade

(ETFC) - Get Report

shares plunged than 11.5% to $1.46 after it said it would look to raise $400 million in a common stock offering and exchange $1 billion in outstanding debt.

Meanwhile, package-delivery company

FedEx

(FDX) - Get Report

shares lost 1.4% to $50.70 after it

posted a widened fourth-quarter loss

and warned that it expects earnings in the next quarter to undercut analyst estimates.

According to data from the Energy Information Administration, there was a bigger than expected drawdown in crude oil inventories last week, but also a greater than expected build in gasoline stockpiles.

U.S. commercial crude inventories decreased by 3.9 million barrels from the previous week to 357.7 million barrels, which is still above the upper boundary of the average range for this time of year. Motor gasoline inventories, on the other hand, increased by 3.4 million barrels, but are below the lower limit of the average range.

Crude futures advanced 56 cents at $71.03 a barrel, while gold tacked on $10.60 to $936 an ounce. Both reversed from losses earlier in the day.

Oil stocks had losses, however, with

Chesapeake Energy

(CHK) - Get Report

losing 1.8%,

PetroChina

(PTR) - Get Report

falling 1.1%,

BP

(BP) - Get Report

giving up 1.8% and

Conoco Phillips

(COP) - Get Report

dropping 1.7%.

The dollar was recently stronger vs. the euro, pound and yen. Longer-dated Treasuries were falling in price, rising in yield. The 10-year was down 8/32, yielding 3.69%, while the 30-year lost 20/32, to yield 4.51%.

Stocks overseas were mostly lower. In Europe, London's FTSE 100 and Frankfurt's Dax were down 1.2% and 1.9%, respectively. Japan's Nikkei added 0.9%, while Hong Kong's Hang Seng gave up 0.5%.