NEW YORK (TheStreet) -- The major U.S. averages fell for a second consecutive session Tuesday with traders showing some nervousness as the Federal Reserve began a two-day policy meeting.

The announcement of a new bond-buying program, or QE3, from the central bank would be a surprise but there is an expectation for the Fed to start to lay the groundwork for such a move in the commentary around its rate decision on Wednesday afternoon. A change in the pledge to keep rates at historic lows for longer than currently telegraphed is viewed as likely.

The Dow Jones Industrial Average slumped 64 points, or 0.49%, to close at 13,009. The blue-chip index, which is now up 6.48% so far in 2012, weakened in the final hour.

The general view of how the Fed meeting is expected to play out was summed up nicely in commentary from Goldman Sachs ahead of the get-together.

"The Federal Open Market Committee (FOMC) is likely to ease monetary policy at the meeting in response to the continued weakness of the economic data and the persistent downside risks from the crisis in Europe," said the firm said Tuesday. "We expect an extension of the current 'late 2014' interest rate guidance to 'mid-2015.'"

"Although a new Fed asset purchase program is a possibility in the near term if the data continue to disappoint, our central expectation is for a return to QE in December or early 2013," Goldman added.

The S&P 500 fell 6 points, or 0.43%, to finish at 1379, while the Nasdaq Composite lost more than 6 points, or 0.21%, to settle at 2939.52.

Apple ( AAPL) shares surged 2.6%, reclaiming the $600 level and giving the Nasdaq some support. Ten jurors were selected Monday in the patent battle between Apple and Samsung Electronics. The trial is expected to last about four weeks.

A positive revenue outlook for Apple supplier Cirrus Logic ( CRUS) was also boosting sentiment for the iPhone maker as was a report by a Sanford Bernstein analyst theorizing Apple could pursue a stock split in order to clear the way for the company to join the Dow. A spokesperson for S&P Dow Jones Indices told The Wall Street Journal the prospect was "pure speculation."

For July, the Dow added 128 points, or roughly 1%, thanks mainly to the massive rally that closed last week. The S&P 500 tacked on 17 points, or 1.25%, for the month, and the Nasdaq rose more than 4 points, or 0.15%. Year-to-date, the S&P 500 is up 9.68% and the Nasdaq has risen 12.83%.

The weakest sectors in the broad market were energy, consumer non-cyclicals, utilities, basic materials and capital goods. Technology was a bright spot.

The slump in stocks came despite domestic economic data that was generally better than expected. The Case-Shiller 20-city home-price index fell 0.7% year over year, less than the predicted 1.5% decline. But on a monthly basis, all 20 cities posted positive returns and 17 of them saw those rates of change increase sequentially.

The Chicago purchasing managers index for July increased to 53.7 from 52.9 last month. Economists on average, expected it to fall to 52.4.

The Conference Board said that consumer confidence improved to 65.9 in July from an upwardly revised 62.7 in June. The consensus forecast among economist was for a decline in July to 61.5.

The Commerce Department reported personal income rose 0.5% in June after increasing by an upwardly revised 0.3% the previous month. Personal spending was unchanged after a downwardly revised 0.1% dip in May. Economists in a Thomson Reuters poll predicted that personal income rose by 0.4% in June and that personal spending inched up 0.1%.

Also, the U.S. Bureau of Labor Statistics reported that compensation costs for civilian workers increased by a seasonally adjusted 0.5% for the three-month period ended June 2012, as expected.

September crude oil futures settled down $1.72 at $88.06 a barrel. December gold futures fell $9.40 to settle down at $1,614.60 an ounce.

The benchmark 10-year Treasury was rising 9/32, lowering the yield to 1.470%. At last check, the greenback was trading down 0.21%, according to the dollar index.

The FTSE in London settled down 1.02% and the DAX in Germany finished flat as tepid labor market data along with disappointing earnings in Europe hurt sentiment.

The number of unemployed in the eurozone rose by 123,000 to a record-high of nearly 18 million people in June from May, according to the European Union's statistics office Eurostat. It was worst level since the formation of the eurozone in 1999 and the 14th straight rise.

The seasonally adjusted unemployment rate stayed at a record 11.2% in June.

ECB stimulus hopes have come about after European Central Bank president Mario Draghi said last week that he would do "whatever it takes" to keep the eurozone in tact.

"The comments that Mario Draghi said were somewhat forceful, but he also said three times 'within our mandate, we'll do whatever it takes to preserve the euro within our mandate,'" said Michelle Gibley, director of international research at Charles Schwab. "He's actually hamstrung by what he's able to do."

"It's a tricky game Europe is playing, because no one really knows at what point do they lose confidence so much that they can't gain it back?" Gibley continued.

"Right now there's a couple problems: one is, in our view, that banks are undercapitalized, they don't have enough firepower right now to fight the crisis ... and then also there is this negatively reinforcing link between the banks and sovereigns. Until they can break that link I think you're just going to continue to see volatility," Gibley added.

The Hong Kong Hang Seng index finished up 1.08% and the Nikkei in Japan settled higher by 0.69%.

On the corporate front, share of Coach ( COH) plunged nearly 19% after the luxury goods maker's quarterly revenue missed estimates.

BP ( BP), the British oil giant, posted underlying replacement cost profit in the second quarter of $3.7 billion, down from $5.7 billion a year earlier. Including charges, BP reported a loss for the period of $1.4 billion.

BP wrote down the value of its assets by $5 billion -- $2.7 billion for U.S. refineries and $2.1 billion for U.S. shale gas assets. It also took an additional provision of $847 million for the Gulf of Mexico oil rig disaster, bringing the total it has set aside to more than $38 billion.

Shares fell nearly 5%.

Swiss banking giant UBS ( UBS) said that its net profit fell 58% to 425 million Swiss francs ($433.8 million) in the second-quarter after it took a bit hit from the troubled Facebook ( FB) IPO. UBS said it will be taking legal action against the Nasdaq ( NDAQ) to "address its gross mishandling of the offering."

UBS's stock dropped 4.2% on the day.

Pfizer ( PFE) posted second-quarter profit Tuesday of 62 cents a share on revenue of $15.1 billion, beating estimates as the company cut costs. Analysts, on average, expected the drug giant to post second-quarter profit of 54 cents a share on revenue of $14.87 billion.

Shares of the Dow component rose 1.4%, the biggest percentage gain among the blue chips, which were mostly negative. Twenty-one of the Dow's 30 components finished lower, led by Caterpillar ( CAT), Home Depot ( HD) and Boeing ( BA).

Shares of Seagate Technology ( STX) slipped more than 1% after the hard disk drive maker reported a non-GAAP profit of $2.41 a share in its fiscal fourth quarter on revenue of $4.48 billion, falling short of Wall Street's expectations for earnings of $2.51 a share on revenue of $4.56 billion.


-- Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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