Obama, Bernanke weigh on Wall Street

Gains faded late as investors turned cautious before the Federal Reserve's policy announcement and President Barack Obama's State of the Union address on Wednesday.

The Fed's Open Market Committee began a two-day meeting on Tuesday against the backdrop of a Senate debate over Chairman Ben Bernanke's reconfirmation. The meeting is expected to yield few policy shifts, with a Fed statement on the economy and interest rates expected on Wednesday.

Most people expect the FOMC to leave rates unchanged. They are not expecting a big statement at this time just because Bernanke still hangs on the cliff, said Kenneth Polcari,

managing director of ICAP Equities in New York.

People are much more interested in what the president is going to say -- how his presentation is going to come across, does it look like he is changing the message, is he going to remain true to the values that he ran on, is he succumbing to more of a populist vote?

The Senate is expected to vote this week on confirmation of Bernanke for a second term as Fed chairman. Some senators have said they will vote against the U.S. central bank chief because of the Fed's handling of the financial crisis.

U.S. stocks fell 5 percent in a three-day span to close out last week after the Obama administration proposed new restrictions on large banks.

After a lower open, stocks rose on data showing consumer confidence rose for a third straight month in January to its highest level since September 2008, easing concerns about individual spending.

But the Dow Jones industrial average <.DJI> ended down 2.79 points, or 0.03 percent, to 10,194.07. The Standard & Poor's 500 Index <.SPX> fell 4.62 points, or 0.42 percent, to 1,092.16. The Nasdaq Composite Index <.IXIC> dropped 7.07 points, or 0.32 percent, to 2,203.73.

Verizon Communications Inc was the second biggest drag on the Dow after saying it faced a slower-than-expected recovery. Its shares fell 1.6 percent to $30.17.

But a number of companies turned it positive report cards. Travelers was the top boost on the Dow, up 2.7 percent to $50.23, after the property-casualty insurer posted a profit that beat Wall Street's estimate.

Apple gained 1.5 percent to $205.94, a day after reporting strong quarterly results and on growing anticipation over its tablet product launch on Wednesday.

The iPhone maker provided the biggest lift to the Nasdaq, followed by Microsoft Corp , up 0.7 percent to $29.50, which is scheduled to report results later this week.

Stocks opened lower on concerns about a Chinese government clampdown on bank lending. Banking sources said China's central bank told some banks to increase their reserve ratios to curb excessive lending.

(Editing by Kenneth Barry)