Updated from 4:05 p.m. EDT

Stocks fell for a second day Tuesday, driven lower by more hawkish commentary from

Federal Reserve

officials, although late buying prevented another rout.

After falling more than 120 points earlier, the

Dow Jones Industrial Average

finished down 46.58 points, or 0.42%, to 11,002.14. On Monday, the average plunged 199 points, or 1.8%, following a stern talk from Fed Chairman Ben Bernanke.

The Dow spent time below 11,000 for the first time since early March.

Alcoa

(AA) - Get Report

and

United Technologies

(UTX) - Get Report

, both down more than 2.2%, were two of the Dow's biggest losers.

The

S&P 500

lost 1.44 points, or 0.11%, to 1263.85, and the

Nasdaq Composite

, which sank 2% Monday, fell another 6.84 points, or 0.32%, to 2162.78. The 10-year Treasury bond was up 6/32 in price to yield 5%, and the dollar rose against the yen and euro.

About 1.89 billion shares changed hands on the

New York Stock Exchange

, with decliners outpacing advancers by a 2-to-1 margin. Volume on the Nasdaq was 2.12 billion shares, with decliners beating advancers 5-to-3.

Before the bell Tuesday, St. Louis Fed President William Poole warned that a slowing economy isn't enough to restrain inflation in and of itself. Poole, in a

Wall Street Journal

interview, said the Fed should maintain an "upside bias" in setting interest rate policy.

The message in the market now is that the Fed will be tougher, making it hard to believe a rally will come anytime soon, said Phillip Roth, chief technical market analyst with Miller Tabak. "The Dow has now moved below last week's low, so it's tough to make big bets as everything is unclear," he said. "We're still in a correction that has a while to run."

Around midday, Fed Governor Susan Bies chimed in, saying after a speech that core inflation is running at a level that makes her "uncomfortable." She added that the Fed is now in a period of transition and can't give the forward-looking policy guidance it had done in the past.

During the last hour of trading, Kansas City Fed President Thomas Hoenig gave a speech in which he said monetary policy was in the neutral range and that inflation should taper off as economic growth slows.

"The economy has lost momentum, and we're now expecting another rate hike," said Jay Suskind, head of equity trading with Ryan Beck & Co. "The term 'stagflation' could rear its ugly head. The marketplace hates uncertainty, which is why the selloff has continued."

On Monday, Bernanke was resolute in his anti-inflation posture. "While monthly inflation data are volatile, core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth," Bernanke said.

To view Gregg Greenberg's video take on today's market, click here

.

Afterward, the likelihood of a June 29 rate hike jumped to roughly 80%, going by fed funds futures.

"The hawkish comments the market saw yesterday were in response to Friday's sharp decline in yields," said Ken Tower, chief market strategist for CyberTrader. "Bernanke wanted to curb the enthusiasm of the bond market as the yield on the 10-year bond dipped below the fed funds rate. If the focus is on inflation, these falling long-term interest rate yields are a positive sign."

By sector, the weakest market subgroups were gold stocks, airlines and homebuilders. The latter group was hurt by a Wachovia downgrade on names such as

Lennar

(LEN) - Get Report

,

DR Horton

(DHI) - Get Report

and

Pulte

(PHM) - Get Report

to market perform from outperform.

The Amex China Index was one of the few bright spots, which posted a 0.6% gain. Elsewhere, the Philadelphia Semiconductor Sector index fell 0.5%.

Trading has been extremely volatile since the last statement from the full Fed, which indicated more tightening could be needed to keep inflation in check. Over those 17 trading days, the Dow has suffered three one-day declines of 180 points or more and had seven sessions in which it moved by at least 90 points.

Commodity prices were lower Tuesday, with front-month crude oil losing 10 cents to close at $72.50 a barrel. Gold fell $14 to $634.70, copper lost 11 cents to $3.48 a pound, and silver futures slipped 45 cents to $11.84 an ounce.

"The recent Fed comments have been bearish for commodity stocks and cyclicals," said Roth. "Basic materials and industrials are taking the hit. We'll see if they can bounce back."

On Wednesday, Atlanta Fed President Jack Guynn will talk about the economy. The Commerce Department releases a report on the April trade deficit on Friday.

Dow component

Hewlett-Packard

(HPQ) - Get Report

said a tax settlement with the IRS will cause it to upwardly revise the second-quarter earnings it reported three weeks ago. H-P now says it earned $1.9 billion, or 66 cents a share, in the quarter, not the $1.5 billion, or 51 cents a share, it reported May 16. However, shares of H-P lost 69 cents, or 2.2%, to $30.90.

Nortel

(NT)

said its first-quarter loss widened by 61% to $167 million, while revenue was unchanged at $2.38 billion. Nortel said margins slipped in mobility, core networks and other segments. Shares were down 6 cents, or 2.6%, to end the session at $2.23.

Google

(GOOG) - Get Report

will unveil a Web-based spreadsheet program Tuesday intended to compete with

Microsoft's

(MSFT) - Get Report

Excel. A Google representative says the product is still in early development and will be available on a test basis for now. Google jumped $15.55, or 4.2%, to $389.99.

General Motors

(GM) - Get Report

CEO Rick Wagoner said his company would be positioned to step up its investment in technology and better compete globally if the company's buyout offer to employees meets with quick success. In an interview with the

Financial Times

, Wagoner stopped short of confirming reports that acceptance of the buyouts is running ahead of forecasts. GM dropped 80 cents, or 3.1%, to finish at $25.25.

CA

(CA) - Get Report

is saying goodbye to another top executive. Global sales chief Gregory Corgan is stepping down amid a snafu involving commission payments that caused the software maker to lower guidance last week. In the past month, the former Computer Associates has lost its CFO, its chief operating officer and its chief technology officer. Shares of CA tacked on 33 cents, or 1.5%, to $21.88.

Federated Department Stores

(FD)

said it will restate its cash flow for the fiscal year ended Jan. 28 in order to adjust a portion of the proceeds from the sale of its credit card accounts to

Citigroup

(C) - Get Report

. Federated anticipates that the restatement will have no impact on its income statement or balance sheet. The stock rose 16 cents, or 0.2%, to close at $72.04.

In ratings news, Piper Jaffray raised

Monster Worldwide

(MNST) - Get Report

to outperform from market perform, while Prudential upped

International Paper

(IP) - Get Report

to neutral from underweight.

Monster added 35 cents, or 0.8%, to $46.20, while International Paper lost 46 cents, or 1.4%, to $32.75.

Overseas markets followed New York lower, with London's FTSE 100 down 1.3% to 5690 and Germany's Xetra DAX off 1.5% to 5538. In Asia, Japan's Nikkei plunged 1.8% overnight, while Hong Kong's Hang Seng slipped 0.3% to 15,973.