Stocks retreat after rally
Investors take a breather after biggest rally of the year. Bernanke, Geithner testify at AIG hearing.
NEW YORK (CNNMoney.com) -- Stocks tumbled Tuesday morning as investors showed caution following the best day on Wall Street in four months.
The Dow Jones industrial average (INDU) lost 70 points, or 0.9%, in the early going. The S&P 500 (SPX) index lost 10 points, or 1.2%. The Nasdaq composite (COMP) lost 19 points, or 1.2%.
Investors are looking to Washington, where Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner are testifying at a Congressional hearing about the government's intervention at American International Group.
Stocks around the world soared Monday, boosted by the U.S. Treasury's plan to remove toxic assets from the balance sheets of banks. The Dow surged 6.8% while the S&P 500 rallied 7.1%. But investors may be ready for a rest after the dramatic advance. Full story
"It wouldn't be a big surprise if there was a negative hangover in the following session," said Ken Wattret, economist with BNP Paribas in London. "Given the scale of the preceding day, you would expect to see a decline.
But given Wall Street's gains over the last two weeks, Wattret detected a bit of optimism in the air, going forward.
"There's a feeling that we're getting to the end of the worse of the news," he said. But he noted that there's plenty to be pessimistic about, including skepticism over whether the toxic assets at the center of the government's plan - and the inspiration for Monday's rally - will ever rise in value.
Financial shares - leaders of the rally Monday - led the decline Tuesday, with Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) among the losers.
AIG hearing: Investors will be watching Bernanke and Geithner. Both will testify at a House Financial Services Committee hearing on AIG (AIG, Fortune 500), due to start at 10 a.m. ET. Full story
AIG has been given access to $182 billion in taxpayer funds in the past six months. Recently it paid out $165 million in retention bonuses to employees in the company's financial products division. Those bonuses were written into employee contracts written in early 2008.
But Dan Cook, senior market analyst at IG Markets in Chicago, believes the government has already wasted too much time on the topic of AIG bonuses - and Tuesday's hearing won't help the stock markets.
"We still have an opportunity to wreck the run we've been on with this AIG hearing," he said. "It's such an emotional issue, this AIG thing, but if you look at the [total] cost, it's a drop in the bucket."
World markets: Asian shares extended gains, rising to their highest level in two months. Japan's Nikkei added 3%. Major European markets were mixed in morning trading, with a decline in London's FTSE, but increases in the XETRA-DAX in Hamburg and the CAC in Paris.
Oil and money: Oil prices fell 55 cents a barrel to $53.25. The dollar rose versus the euro and the yen, but fell against the British pound. 
