Stocks fell in volatile trading on Tuesday, with the S&P ending below 700 for the first time since October 1996 as persistent uncertainty about the amount of money needed to shore up the financial system overshadowed a hunt for bargains.

Stocks swung to both sides of the break-even mark throughout the session with the S&P's ultimate break below the key psychological level of 700 adding to the gloom.

Federal Reserve Chairman Ben Bernanke left the door open to whether banks will need more money when he said the size of a $700 billion bank-rescue package would depend on bank stress tests being conducted by regulators and the economy's direction.

An S&P index of bank stocks <.GSPF> fell 1.6 percent, with Goldman Sachs off 4.5 percent at $82.37 and PNC Financial Services

down 5 percent at $24.82.

His comments were a reality check for the market that nothing changed between yesterday and today, said Jim Awad, managing director at Zephyr Management in New York.

It renewed fears that there is no bottom in terms of toxic assets and no bottom in terms of need for capital.

The Dow Jones industrial average <.DJI> fell 37.27 points, or 0.55 percent, to 6,726.02. The Standard & Poor's 500 Index <.SPX> lost 4.49 points, or 0.64 percent, to 696.33. The Nasdaq Composite Index <.IXIC> shed 1.84 points, or 0.14 percent, to 1,321.01.

The S&P is down nearly 23 percent for the year so far and has given up more than 55 percent since the high hit in October 2007.

700 is an amazing number when you think 16 months ago, we were at the high, said Howard Silverblatt, senior index analyst for Standard & Poor's.

It's psychological and obviously, it reinforces the negative situation, especially where there's not a lot of credibility out there.


On the upside, energy shares got a boost from oil's gain of $1.50 to settle at $41.65 a barrel on expectations that OPEC will cut production output again. Chevron cut earlier gains to end up just 0.2 percent at $57.73.

American Express shares rose 6.9 percent to $11.82 after the U.S. government unveiled details of a program to stabilize the financial system that could ease the credit card company's financial expenses.

In its latest efforts to bolster the economy, the Federal Reserve and the Treasury launched a new securities loan program and said a future expansion may include some of the riskier mortgage and debt securities hampering banks.

The $200 billion Term Asset-backed Securities Loan Facility, or TALF, is designed to give frozen securitization markets a jolt by offering financing for investors to encourage them to buy AAA-rated asset-backed securities.

In testimony before a congressional committee, Treasury Secretary Timothy Geithner said the Obama administration will work with Congress to determine the size and shape of future efforts to shore up banks and acknowledged the cost of the financial bailout may rise.

General Electric Co , down 7.8 percent at $7.01, also weighed down the market as investors fretted about the conglomerate's future. Last week, GE announced a deep cut in its dividend.

Trading was active on the New York Stock Exchange, with about 1.90 billion shares changing hands, above last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.44 billion shares traded, above last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ration of about 2 to 1, while on the Nasdaq, about nine stocks fell for every five that rose.

(Additional reporting by Rodrigo Campos and Deepa Seetharaman;

Editing by Jan Paschal)