Stocks cut losses in afternoon trading, led by a rise in tech shares. The S&P 500 technology index ended up 0.1 percent, helped by gains in Apple, up 1.7 percent at $127.04, and Facebook, up 1.7 percent at $79.36.

After the bell, shares of Oracle rose 3.4 percent to $44.33 following results.

Investors were anxious as the Federal Open Market Committee kicked off a two-day policy meeting, to be followed by a statement from Fed Chair Janet Yellen Wednesday afternoon.

Most economists expect the Fed to remove a pledge to be "patient" about raising interest rates from its statement. Market strategists said with or without a change in the language, the Fed may still be on track to raise rates as early as June.

"People are waiting for the Fed to provide some degree of clarity," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

Among S&P 500 sectors, materials was the weakest with a 1.2 percent decline, led by DuPont, down 3.1 percent at $74.68.

The Dow Jones industrial average fell 128.34 points, or 0.71 percent, to 17,849.08, the S&P 500 lost 6.91 points, or 0.33 percent, to 2,074.28 and the Nasdaq Composite added 7.93 points, or 0.16 percent, to 4,937.44.

In addition to anxiety about the Fed statement, options expiration on Friday may have contributed to the day's volatility, said Bruce Zaro, chief technical strategist, Bolton Global Asset Management in Boston.

While higher rates would be a sign of strength in the U.S. economy, some investors question whether the economy is strong enough to handle increased borrowing costs.

The S&P 500's pullback followed its biggest percentage gain since Feb. 3 on Monday.

Johnson & Johnson weighed most heavily on the S&P 500 with a 1.2 percent decline to $99.89.

Also boosting the Nasdaq, shares in American Airlines jumped 6.9 percent to $53.69 after an announcement that it would join the S&P 500.

About 6.1 billion shares changed hands on U.S. exchanges, below the 6.6 billion average for the month to date, according to BATS Global Markets.

Declining issues outnumbered advancing ones on the NYSE by 1,607 to 1,429, for a 1.12-to-1 ratio; on the Nasdaq, 1,384 issues rose and 1,330 fell, for a 1.04-to-1 ratio favoring advancers.

The S&P 500 posted 26 new 52-week highs and three new lows; the Nasdaq Composite recorded 112 new highs and 62 new lows.

(Editing by Nick Zieminski and James Dalgleish)

By Caroline Valetkevitch