NEW YORK (CNNMoney.com) -- Stocks fell sharply Tuesday as investors retreated from the market a day before the start of the Federal Reserve's highly anticipated two-day policy meeting.

The Dow Jones Industrial average (down 120.54 to 10,924.74, Charts) lost 1.1 percent, while the broader Standard & Poor's 500 (down 11.36 to 1,239.20, Charts) index tumbled 0.9 percent.

Both the Dow (blue) and Nasdaq (yellow) finished the day near session lows.

The tech-heavy Nasdaq composite (down 33.42 to 2,100.25, Charts) sank 1.6 percent, largely due to weakness in the chip sector.

All three major gauges erased the previous session's gains.

"I think the market's just not going to be able to put the puzzle together until we see the Fed statement Thursday," said Scott Wren, senior equity strategist at A.G. Edwards & Sons

Investors took in reports on housing and consumer confidence that both came in above expectations, rattling investors already nervous the Fed will say there's reason to remain concerned about inflation and vigilant about interest rates.

The Conference Board said consumer confidence edged higher in June but the report also showed that consumers are worried about the months ahead.

The National Association of Realtors said May existing home sales fell to a seasonally adjusted annual rate of 6.67 million units in May, versus expectations for a bigger decline to a 6.61 million unit pace.

While sales didn't slow as much as economists surveyed by Briefing.com had expected, the report pointed to overall cooling in the housing sector.

"We've been expecting housing to slow for a while, and things are moving in line with forecasts," said Gus Faucher, director of macroeconomics at Moody's Economy.com.

Housing will be one of the sectors Fed policy-makers examine when they meet Wednesday and Thursday.

The Fed is all but certain to raise interest rates another quarter-percentage point to 5.25 percent, but investors will be scouring the central bank's policy statement for clues to how much further rates may rise. (Full story)

Higher interest rates raise the cost of borrowing, which makes it harder for businesses to make money. Investors are also concerned the Fed may raise rates too high and strangle economic growth.

Wednesday brings the government's weekly reading on crude inventories, which is the only report on the economic calendar.

As of 5:15 p.m. ET, Nasdaq and S&P futures pointed to a mixed opening for stocks Wednesday.

On the blue-chip Dow, 26 components fell while four gained.

Dow component GM (down $1.85 to $25.90, Charts) said late Monday that 35,000 union workers would take buyouts or early retirement, allowing the company to raise its cutting target by $1 billion annually to $8 billion.

But its stock sank nearly 7 percent after the automaker's chief market analyst said Tuesday that industry sales would probably fall from last year due to higher gas prices and interest rates. (More on the buyouts)

Chemicals maker DuPont (down $1.16 to $40.88, Charts) was another big decliner, losing almost 3 percent after French conglomerate Vivendi said it sold its 1.8 percent stake in the company.

Elsewhere, Spanish-language media company Univision (up $1.97 to $34.00, Charts) jumped 6 percent after it agreed to be bought by a group of private equity firms and media mogul Haim Saban for $13.7 billion.

The deal comes on the heels of a spate of corporate dealmaking in the mining, steel and consumer healthcare sectors. (Full story).

Shares of newspaper publisher Tribune Co. (up $1.57 to $32.47, Charts) rose 4.5 percent after it said it plans to buy back 45 million shares.

Chip stocks retreated after Intel (down $0.23 to $18.05, Charts) said it would sell its phone chip unit to Marvell Technology Group. Shares of Marvell (down $7.76 to $44.14, Charts) sank about 15 percent, and the Philadelphia Semiconductor Index (down $16.79 to $431.52, Charts) lost almost 4 percent.

Market breadth was negative. On the New York Stock Exchange, losers topped winners by a margin of eight to three on volume of 1.55 billion shares. On the Nasdaq, decliners beat advancers by a margin of three to one as 1.82 billion shares changed hands.

U.S. light crude oil for August delivery rose 12 cents to settle at $71.92 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery fell $3.20 to $584.50 an ounce.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 5.20 percent, down from 5.22 percent late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar was little changed versus the euro and the yen.

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