NEW YORK - Wall Street stocks dipped Tuesday in hesitant trade amid worries about capital shortfalls for US banks that underwent stress tests and cautious comments on the economy by Fed chairman Ben Bernanke.

The Dow Jones Industrial Average edged lower by 16.09 points (0.19 percent) to close at 8,410.65 a day after a surge of 2.6 percent that lifted the blue-chip index to its highest level since January 13.

The tech-heavy Nasdaq shed 9.44 points (0.54 percent) to 1,754.12 and the Standard & Poor's 500 dropped 3.44 points (0.38 percent) to 903.80.

US banking regulators and the Federal Reserve are set to release results Thursday from stress tests of the 19 banks.

But John Wilson at Morgan Keegan said the market appears to have already factored in the stress tests.

"Investors seem to be taking a fairly sanguine view of the upcoming release of the 'stress tests,'" he said.

"A good bit of information has already been leaked, so the actual announcement could be anti-climactic."

Meanwhile Bernanke told lawmakers the recession-hit US economy could turn around this year but warned of further "sizable" job losses and vulnerability of the financial system.

"Bernanke remained cautious and pointed out that the rate of growth in the economy is likely to remain below its longer-run potential 'for a while,'" said analysts at Charles Schwab & Co.

"Bernanke also called attention to the importance of the banking system for any prospects of a recovery and mentioned again the stress tests that have been applied to major US banks, although he failed to give investors any clues as to what the outcome of those tests will be."

On the economic front, the Institute of Supply Management said its index of the vast services sector increased to 43.7 percent, better than expected, offering further hope for an economic rebound.

"While both the services and manufacturing sectors are still declining, they are starting to flatten their descent and seem to be preparing for landing," said Joel Naroff at Naroff Economic Advisors.

Josh Heller at RBC Economics Research said this was among several signs of an improving economy.

As the trend continues, he said he expects "the green shoots bearing fruit during the second half of the year, whereupon we project the quarterly growth profile turning positive in the US."

Among stocks in focus, Kraft Foods rallied 3.96 percent to 25.22 dollars after its first-quarter earnings topped forecasts.

Banks were mixed amid anxiety on the stress tests.

Wells Fargo slumped 4.04 percent to 23.27 dollars while Bank of America rose 4.43 percent to 10.84 and Citigroup added 3.44 percent to 3.31 dollars.

Bonds were mixed. The yield on the 10-year US Treasury bond held unchanged from Monday at 3.157 percent and that on the 30-year bond eased to 4.053 percent against 4.065 percent. Bond yields and prices move in opposite directions.

-AFP