Investor optimism faded in a hurry Tuesday after two days of conferences ended with no resolution to Greece's debt crisis.
Stocks erased nearly all of their gains in the last hour of trading after rallying for much of the day on hopes the Fed would stimulate the economy.
At the closing bell, the Dow Jones industrial average was left with a gain of 7.65 points, or 0.1 percent, at 11,408.66. It had been up as much as 149.21 points earlier in the day.
The Standard & Poor's 500 index fell 2, or 0.2 percent, to 1,202.09. The Nasdaq composite fell 22.59, or 0.9 percent, to 2,590.24.
Many analysts believe the Fed will announce a new stimulus plan at the end of a two-day policy meeting today. But another two-day meeting, a teleconference between Greek officials and international lenders, spurred sellers late in the day.
After the teleconference, the European Commission said debt inspectors would continue to review Greece's progress on its budget goals early next week. That suggested to investors that a resolution to Greece's debt crisis wouldn't come in the next few days.
Greek Finance Minister Evangelos Venizelos attempted to convince the European Commission, International Monetary Fund and European Central Bank, known collectively as the Troika, that Greece can make deep budget cuts. Greece must meet the Troika's strict budget targets to qualify for a second installment of the rescue package it received in 2010 to keep it from defaulting on its debt.
Greece is only one of several European countries that investors fear are at risk of failing to pay debts. Monday night, the ratings agency Standard & Poor's cut Italy's credit rating by one notch, citing the country's growing debt and weak growth outlook. Italy has the second-biggest debt burden among countries that use the euro, after Greece.
If Greece or Italy were to default, European banks that have lent money to the countries could lose billions of dollars. That could hurt the European banking system and have repercussions for U.S. banks, which have lent billions to their European counterparts. Investors are concerned a default in Europe could cause a crisis similar to what happened after the collapse of Lehman Brothers in 2008.
Investors have shifted between optimism and pessimism that the region's debt problems will be resolved. Stock prices have swung sharply for months in response to investors' changing mood. Moves of more than 100 points in the Dow have become commonplace.
A bleak forecast for U.S. economic growth added to fears the United States could be headed for a second recession, but it sparked hopes the Fed would enact stimulus measures.
In a sign that the market's afternoon rally was a cautious one, stocks were led higher by industries that tend to do well regardless of the economy, such as utilities and health care. Investors are reluctant to take much risk, said Quincy Krosby, market strategist for Prudential Financial.