U.S. stocks slid on Tuesday, retreating after initial, earnings-fueled gains were overshadowed by cautious comments on the economic outlook from company executives and Federal Reserve Chairman Ben Bernanke.

Stock indexes opened higher after better-than-expected results from Dow components, including Caterpillar Inc and Merck & Co , but companies warned of challenges headed into the third quarter, a cautious note that Bernanke echoed in Congressional testimony.

Shares of Caterpillar, up 5.6 percent to $38.72, were still the Dow's strongest, but were far off the day's highs after the company said it expects the third quarter to be the year's weakest and extremely challenging.

United Technologies Corp shares fell 2.5 percent to $53.62 after the company, a Dow component, posted a 23 percent drop in profit and lowered its 2009 forecast. The company's chief financial officer said cost-cutting will lead to profit growth, but we do not anticipate a significant economic recovery in 2010.

Fed Chairman Ben Bernanke said in testimony to a U.S. House of Representatives committee that job insecurity plus declines in home values and tight credit are likely to limit gains in consumer spending -- a major driver of the U.S. economy.

What we're seeing today is a combination of markets focusing on two things: the caution from companies, and the remaining hurdles the economy must work through before it reaches recovery, said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

The Dow Jones industrial average <.DJI> was down 8.54 points, or 0.10 percent, at 8,839.61. The Standard & Poor's 500 Index <.SPX> fell 4.90 points, or 0.52 percent, at 946.23. The Nasdaq Composite Index <.IXIC> slid 11.13 points, or 0.58 percent, at 1,898.16.

The S&P 500 closed at an eight-month high on Monday, as the early stages of a healthier-than-expected second-quarter earnings season buoyed investors' hopes for an economic recovery.

In regulatory news, the U.S. Treasury Department sent to Congress a draft bill that would curb the power of credit ratings agencies.

Moody's Corp shares dropped 6.3 percent to $26.79, and shares of McGraw-Hill Cos , which owns Standard & Poor's, fall 2.2 percent to $32.30.

Also weighing on the market were shares of Regions Financial Corp and Comerica Inc , two large U.S. regional banking companies. The banks slid after both posted second-quarter losses as a deteriorating commercial property market caused bad loans to soar. Regions' stock dropped 15.4 percent to $3.42 and Comerica's stock lost 9.9 percent to $20.57.

The KBW Bank Index <.BKX> dropped 4.2 percent.

Troubled lender CIT Group Inc warned on Tuesday it could still file for bankruptcy if a cash tender offer for its outstanding notes fails, one day after securing $3 billion in emergency financing from its bondholders.

Its shares were down 25.6 percent to 93 cents.

(Reporting by Rachel Chang; Editing by Padraic Cassidy)