The Dow and S&P 500 had ended a volatile session up slightly on Monday in a late turnaround, but a drop in biotechs and energy shares kept a lid on the market.
The start of earnings season added to investor nervousness. The Nasdaq ended lower, led by a drop in biotech company Celgene , which fell 5.5 per cent to $103.03 following a disappointing profit forecast.
The Nasdaq Biotech index fell 3.4 per cent in its eighth straight down day.
Stocks had their worst five-day start to a year ever following mounting investor concerns about declining oil prices and a China-led slowdown in global growth.
"The fact that we didn't see kind of another washout today kind of emboldened some of investors to think that perhaps, at least on a short-term basis, maybe it was time for the market to bounce a little bit," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
Apple was the biggest positive for the S&P 500 and Nasdaq. It rose 1.6 per cent to $98.53 after reports that its music streaming service hit the 10 million-subscriber mark in six months.
The Dow Jones industrial average was up 52.12 points or 0.32 per cent to 16,398.57, the S&P 500 gained 1.64 points or 0.09 per cent to 1,923.67 and the Nasdaq Composite dropped 5.64 points or 0.12 per cent to 4,637.99.
Stocks turned up late in the session, and the CBOE Volatility Index - Wall Street's fear gauge - finished down 10 per cent.
"The market is very stretched to the downside. Being oversold doesn't mean it's over, but nonetheless these things only go so far before you get at least some kind of relief rally," said Frank Gretz, market analyst and technician for Wellington Shields & Co. in New York.
The S&P energy sector dropped 2.1 per cent following another sharp drop in oil prices, while the health sector declined 1.2 per cent. Among materials stocks, Freeport-McMoRan tumbled 20.3 per cent to $4.31.
Shares of McKesson dropped 10.3 per cent to $163.55, also following a disappointing profit forecast.
Investors are worried about a US earnings recession, with fourth-quarter results forecast to show the second straight quarterly decline for S&P 500 earnings.
Overall, quarterly corporate earnings are expected to have fallen 4.2 per cent from a year ago, according to Thomson Reuters data.
After the bell, shares of Alcoa Inc slipped 0.4 per cent to $7.98. The company reported a quarterly net loss after charges related to shuttering parts of its traditional smelting business.
Declining issues outnumbered advancing ones on the NYSE by 2,003 to 1,069, for a 1.87-to-1 ratio on the downside; on the Nasdaq, 1,743 issues fell and 1,081 advanced for a 1.61-to-1 ratio favouring decliners.
The S&P 500 posted one new 52-week high and 111 new lows; the Nasdaq recorded 14 new highs and 416 new lows.
About 9.1 billion shares changed hands on US exchanges, compared with the 7.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.