The stalemate in debt talks dragged down stocks for a second day on Tuesday, and light volume showed investors remained reluctant to make bets despite another round of healthy earnings.

Declining issues solidly outpaced advancing ones, even though major averages showed mostly modest declines.

A failure to raise the U.S. debt limit by an August 2 deadline could roil markets and hurt the economy if the United States puts off paying bills. Democrats and Republicans continued to joust on Tuesday over which side's plan has the better chance of passage.

Investors believe that there's going to be a resolution at the 11th hour, but many of those investors are starting to get cold feet, said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.

Just 6.46 billion shares changed hands in composite trading, another lower-than-average day of activity.

Technology stocks again outperformed after Broadcom Corp reported strong results on Monday night, the latest in a string of chip companies to delight investors. The stock jumped 9.4 percent to $38.20.

Shares of top Chinese search engine Baidu Inc rose 5 percent to $164.36, a day after it forecast revenue well ahead of Wall Street expectations.

The SPDR Technology Select Sector Index exchange-traded fund up 0.3 percent.

Second-quarter earnings that have been mostly stronger than expected have offered protective armor for a market battered by the debt debate.

At the close, the Dow Jones industrial average <.DJI> was down 91.50 points, or 0.73 percent, at 12,501.30. The Standard & Poor's 500 Index <.SPX> was down 5.49 points, or 0.41 percent, at 1,331.94. The Nasdaq Composite Index <.IXIC> was down 2.84 points, or 0.10 percent, at 2,839.96.

Among investors, retail clients appear more anxious than institutional ones over the failure of lawmakers to reach a deal on the debt ceiling, said Charles Lieberman, chief investment officer of Advisers Capital Management, LLC in Hasbrouck Heights, New Jersey.

Retail investors I think are more easily scared, and they expressed concern, he said. When we discussed the various options with them, they typically come to the conclusion there isn't a whole lot we can do to deal with the circumstances. Anything we can do could backfire.

Weighing on the Dow were shares of 3M Co , the conglomerate whose products range from Post-It Notes to specialty films for computers and televisions. Its share dropped 5.4 percent to $89.93, hurt by softness in some divisions even though its results met estimates.

It exerted a 38-point drag on the Dow, accounting for more than half of losses of the 30-component index on the day.

Among other decliners, Netflix Inc slid 5.2 percent to $266.91, a day after the movie rental company warned its red-hot subscriber growth would cool in the third quarter.

(Editing by Leslie Adler)