U.S. stocks fell on Tuesday as fresh worries that major banks may need to raise more money offset more reassuring economic data that suggested the worst may be over and a big dividend boost from IBM.

Worries also lingered over the economic impact from the threat of a flu pandemic, as New Zealand and Israel were the latest countries to confirm cases of a new strain of flu linked to dozens of deaths in Mexico.

U.S. regulators have told Citigroup Inc it may need to raise more capital, sources told Reuters. The Wall Street Journal reported that Bank of America also is talking to the government about its capital condition and the shortfall could amount to billions of dollars.

But data showed the decline in U.S. house prices slowed in February while consumer confidence in April had its biggest jump in more than three years.

International Business Machines Corp gave the Dow its biggest boost, up 2 percent at $101.94 after its board approved a 10 percent increase in its dividend and authorized a stock buyback, highlighting resilience in a tough economic climate.

Although Wall Street closed out the session in negative territory, the major indexes recovered from their session lows, when they slid more than 1 percent.

Two days in a row, where you walked in with a pretty weak pre-opening market largely driven by what's gone on overseas, swine flu, etc and we managed to come back -- that's a sign of a healthy market, said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

A lot of this (bank decline) has been telegraphed -- banks have started to retreat and digest a little bit of the move that they've had. They've had a pretty nice move off the bottom.

The Dow Jones industrial average <.DJI> slipped 8.05 points, or 0.10 percent, to 8,016.95. The Standard & Poor's 500 Index <.SPX> dropped 2.35 points, or 0.27 percent, to 855.16. The Nasdaq Composite Index <.IXIC> declined 5.60 points, or 0.33 percent, to 1,673.81.

DOW'S UP OVER 22 PCT FROM MARCH LOW

The Dow is up 22.5 percent from its 12-year closing low on March 9. For the month of April alone, the Dow is up 5.4 percent. But it remains down 8.7 percent for the year.

Citigroup is talking to the U.S. government about its capital levels after receiving early results of its stress test, but if it needs more capital, the bank does not expect to get it from the government, people familiar with the matter told Reuters.

Bank of America's stock tumbled 8.6 percent to $8.15 and ranked among the top weights on the blue-chip Dow, while Citigroup lost 5.9 percent to $2.89. The KBW Bank index <.BKX> slid 2.9 percent.

On Nasdaq, shares of Dendreon were halted, down 45.2 percent at $11.81, after a closely watched study showed the company's experimental cancer vaccine improved three-year survival of patients with advanced prostate cancer by 38 percent, compared with a placebo.

Trading was light on the New York Stock Exchange, with about 1.25 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.10 billion shares traded, below last year's daily average of 2.28 billion.

Even though the major U.S. stock indexes slipped late and finished slightly lower, the market's breadth was positive.

On the NYSE, advancing stocks outnumbered declining ones by 1,581 to 1,409, while on the Nasdaq, advancers beat decliners by 1,547 to 1,110.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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