Stocks take a second step back

ROAD TO RESCUE

• Home prices up for 1st time in 3 years
• New home sales: 'Really good news'
• Wall Street: Here comes the hard part
• 7 regional banks fail
• Banker: "TARP helped avert a global calamity"

Tracking the bailout

Economy rescue: Adding up the dollars

The government is engaged in an unprecedented - and expensive - effort to rescue the economy. Here are all the elements of the bailouts.

View chart

Quick Vote

Can the new GM-Segway two-seater people mover help save GM?

• Yes. I can't wait to tool around town in mine.
• No. I wouldn't be caught dead driving one.
• Maybe. But really, this is just a ridiculous PR stunt.

or View results

NEW YORK (CNNMoney.com) -- Stocks fell Tuesday, retreating for a second straight session after a four-week advance, on worries about banks and autos and the start of the quarterly reporting period.

The Dow Jones industrial average (INDU) lost 186 points, or 2.3%. The S&P 500 (SPX) index dipped 20 points, or 2.4%. The Nasdaq composite (COMP) fell 45 points, or 2.8%.

After the close, Alcoa (AA, Fortune 500) reported a first-quarter loss of 59 cents per share, wider than the 56 cents per share loss analysts surveyed by Thomson Reuters were expecting. The aluminum maker earned 44 cents a year earlier.

Revenue fell to $4.1 billion from $7.375 billion a year ago, versus forecasts for a steeper drop to $4.077 billion. Alcoa is typically the first Dow component and major company to report results. Shares fell 3% in extended-hours trading after rising just after the release of the report.

Alcoa is just the start of what is going to be a poor earnings reporting period, with results set to slump at least 35% versus a year ago, said Ram Kolluri, director and chief investment officer at ICICI Group Global Private Clients.

Stocks have been retreating this week in the aftermath of a swift rally that propelled the major gauges more than 20% off multi-year lows.

"We had this rally on optimism that the banking system is stabilizing, but the advance was somewhat premature," Kolluri said. "Now the reality of the earnings is going to hit us."

Tuesday's market: General Motors is preparing for the possibility of filing for bankruptcy, if it can't meet the government's reorganizing deadline of June 1, according to a source familiar with the company's plans. The news dragged on investor sentiment and sent GM (GM, Fortune 500) shares down by 12%. Healthier rival Ford Motor (F, Fortune 500) lost 7.5%.

Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500) and other oil services stocks slipped along with the price of oil, which closed below $50 a barrel.

Meanwhile, a number of bank stocks weakened for a second straight session. The KBW Bank (BKX) index lost 3.5%.

Beyond the corporate news, stocks were vulnerable to a pull back anyway, following a big four-week rally that saw all three major gauges jump at least 20%.

Since bottoming at a 12-year low on March 9, the Dow has rallied 21%, its best four-week run since 1933, when it added 31%. The advance was driven in part by optimism that the economy and financial sector are close to stabilizing.

But after such a run, a turnaround was fairly typical, said Tom Schrader, managing director at Stifel Nicolaus. He said stocks could even go back to "retest" those March lows, before making a bigger move higher.

"I think the lows will hold this time," he said, noting that the outlook was a lot more grim in the fall during previous attempts at finding a floor.

"The doomsday scenario has gone by the wayside," he said. "There's still a long way to go, in terms of the economy, the housing market, the banks, but there's definitely more optimism in the market than in those previous attempts."

On Monday, a breakdown in merger talks between IBM and Sun Microsystems weighed on techs. Bank shares were bludgeoned after an influential analyst said the default rate on loans will approach the percentages seen during the Great Depression.

GM prepares for bankruptcy: As GM struggles to meet the government's June 1 restructuring deadline, it is also preparing for bankruptcy, a source told CNNMoney.com.

The company is still trying to get concessions from its unions and creditors ahead of the Obama administration deadline, but it is also in "intense and earnest" preparations for a possible filing, the source said.

GM and privately-held Chrysler have both received billions in government aid. (Full story)

Separately, GM said that it has paired with Segway to create a two-wheeled, two-seat, electrically powered vehicle for city navigation. Project P.U.M.A. - Personal Urban Mobility and Accessibility - was unveiled Tuesday in New York.

Economic news: Borrowing costs slipped, following a one-month advance, the Federal Reserve said Tuesday. Consumer credit fell 3.5% in February after rising 1.8% in January. Economists surveyed by Briefing.com thought it would fall 1.5%.

Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.75% from 2.87% Monday. Treasury prices and yields move in opposite directions.

Lending rates were little changed. The 3-month Libor rate fell to 1.15% from 1.16% Monday, according to Bloomberg.com. The overnight Libor rate inched higher to 0.28% from 0.27% Monday. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian and European markets tumbled.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for May delivery fell $1.90 to settle at $49.15 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $10.50 to settle at $883.30 an ounce.