(By Salman - iStockAnalyst Writer)

US stocks extended losses on Tuesday as investor sentiment remained weak amid ongoing worries about the health of financial system.

The Dow Jones Industrial Average lost 37.27 points or 0.55% to finish at 6,726.02. The S&P 500 fell 4.49 or 0.64% to 696.33, a level last seen in October 1996. The Nasdaq Composite declined 54.99 points or 3.99% to 1,322.85.

In a hearing at the Senate Budget Committee, Bernanke defended government's effort to stabilize markets. He said that the effectiveness of a series of moves by the Fed, the Treasury Department and other government agencies “will be critical determinants of the timing and strength of the recovery."

However, Bernanke cautioned that the timing and magnitude of the impact of the stimulus package is subject to "considerable uncertainty, reflecting both the state of economic knowledge and the unusual economic circumstances that we face."

Meanwhile, the Federal Reserve on Tuesday launched $200 billion Term Asset-backed Securities Loan Facility, or TALF program, a lending program aimed at consumers and small businesses.

Shares of General Electric Co. (NYSE: GE) tumbled 59 cents or 7.76% to $7.01. In a letter released late on Monday, CEO Jeffrey Immelt said that the diversified US firms' reputation has been tarnished but this "environment presents an opportunity of a lifetime." He added further "2008 was a tough year, and we expect 2009 to be even tougher."

Home improvement retailer Home Depot Inc. (NYSE: HD) plunged $1.03 or 5.17% to $18.89.

Among financials, Goldman Sachs (NYSE: GS) plummeted $3.90 or 4.52% to $82.37. Bank of America (NYSE: BAC) trimmed early gains after Standard & Poor's cut its rating on the bank by one notch, citing earnings pressure. Shares of Bank of America finished at $3.65, up 2 cents or 0.55%.

American Express Co. (NYSE: AXP) jumped 76 cents or 6.87% to $11.82 on hopes that TALF program will boost the credit card lender's business.

Struggling US automaker General Motors retreated 2 cents or 1% to $2.01. General Motors (NYSE: GM) on Tuesday reported that vehicle sales dropped 52.9% in February.

Rival Ford Motor Co. (NYSE: F) slumped 7 cents or 3.72% to $1.81 after it said that car sales fell 48% in February from a year ago.

Shares of Autozone (NYSE: AZO) soared $10.91 or $7.79% to $150.94 after the auto-parts retailer announced that second quarter net income climbed 9% to $115.9 million, or $2.03 a share, up from $106.7 million, or $1.67 a share in the prior year quarter.Quarterly revenue grew 8% to $1.45 billion from $1.34 billion.

Drugstore chain Walgreens (NYSE: WAG) said that its February sales rose 3.4% to $5.09 billion. Comparable-store sales decreased 1.9%.Shares of the company dropped 47 cents or 2.02% to $22.77.

Chico's FAS Inc. (NYSE: CHS) rose 13 cents or 3.17% to $4.23 after it reported that its fourth-quarter loss widened to $40.5 million, or 23 cents a share, from $20.5 million, or 12 cents in the prior year quarter. Revenue declined to $373.4 million from $409.3 million.

On the front of economic data, the National Association of Realtors said on Tuesday that pending home sales tumble 7.7 percent to 80.4, the lowest since the records began in 2001.

European stocks settled down. The U.K. FTSE retreated 113.74 points or 3.14% to close at 3,512.09. The German DAX and French CAC slumped 0.52% and 1% respectively.

Asian stocks finished lower. The Nikkei 225 fell 50.43 points or 0.69% to 7,229.72. The Hang Seng index of Hong Kong dropped 283.58 points or 2.30% to 12,033.88.

NYMEX crude oil for April delivery climbed $1.50 or 3.74% to settle at $41.65 a barrel.
 
Disclosure: Author does not own any of the stocks discussed here.