NEW YORK — Wall Street ended a whipsaw day mostly lower Tuesday, as fears of escalating instability in the financial sector kept investors on edge despite a steep retreat in oil. The Dow Jones industrials had their first close below 11,000 since July 2006.

Just days after the government said it would aid Fannie Mae and Freddie Mac if necessary, Federal Reserve Chairman Ben Bernanke told Congress the U.S. economy faces "numerous difficulties." During the day's testimony, Treasury Secretary Henry Paulson also said the Bush administration has no immediate plans to lend money to the mortgage giants or buy their stock.

Shares of Fannie and Freddie — which together hold or back nearly half of all the nation's mortgages — tumbled again.

The stock market did benefit from some bargain-hunting as oil retreated from its near-record levels, but the uncertainty of the financial sector made that recovery hard to sustain. If oil prices stabilize or retreat, consumers might feel more comfortable spending on discretionary items, and in turn help the economy.

"There's definitely a correlation between high energy prices and low consumer spending, and we need that to abate to get us a break," said Kim Caughey, equity research analyst at Fort Pitt Capital Group.

A barrel of light, sweet crude dropped $6.44 to settle at $138.74 on the New York Mercantile Exchange as traders bet that the weak economy in the United States and elsewhere will take its toll on global demand.

While some of the market's most battered bank stocks — including Washington Mutual Inc., Lehman Brothers Holdings Inc., and regional bank First Horizon National Corp. — finished higher Tuesday, most bank stocks gave up their brief rallies by the end of the session.

According to preliminary calculations, the Dow fell 92.65, or 0.84 percent, to 10,962.54. It was the blue chips' lowest close since July 24, 2006; the high price of oil is one of the major reasons the Dow has been trading at nearly two-year lows.

Broader stock indicators ended mixed. The Standard & Poor's 500 index fell 13.39, or 1.09 percent, to 1,214.91, while the Nasdaq composite index rose 2.84, or 0.13 percent, to 2,215.71.

Treasury prices traded higher, but pared earlier gains. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.83 percent from 3.86 percent late Monday.

The Labor Department said Tuesday that core inflation at the wholesale level, which excludes energy and food, ticked up by just 0.2 percent, but that overall wholesale prices jumped by a larger-than-expected 1.8 percent — the biggest gain since November. For the past 12 months, wholesale prices including food and energy showed an increase of 9.2 percent, the largest increase since June 1981.

U.S. consumers have been monitoring their budgets more carefully in the face of higher energy prices, falling home values and an uncertain jobs climate. The Commerce Department reported Tuesday that retail sales edged up by 0.1 percent — a weaker amount than the 0.4 percent increase analysts expected in June. Total sales were dampened especially by plummeting sales at car dealerships.

"The bottom line is, eventually, oil as a commodity is going to react to the overall economy," said Dan Alpert, managing director at the investment bank Westwood Capital.

Among the stronger stocks of the day were Lehman, which rose 82 cents, or 6.6 percent, to $13.22; WaMu, which rose 38 cents, or 11.8 percent, to $3.61; and First Horizon, which rose 85 cents, or 16.9 percent, to $5.89. First Horizon named a new CEO on Tuesday.

But Fannie Mae fell $2.66, or 27 percent, to $7.07, and Freddie Mac fell $1.85, or 26 percent, to $5.26. Treasury Secretary Henry Paulson said that if the government extends financial backing to the two institutions, it will be done "under terms and conditions that protect the U.S. taxpayer."

In a bid to protect Fannie Mae and Freddie Mac, Securities and Exchange Commission Chairman Christopher Cox said to Congress Tuesday that the SEC will broaden existing rules prohibiting naked short selling of banks and broker dealers.

Short-selling is a type of speculation, where a trader sells securities he doesn't own; essentially, it's a bet that a stock will fall. Naked short-selling is when a trader makes such a bet without arranging to borrow the stock first.

Another big decliner was American International Group Inc., which suffered the worst percentage drop in the Dow on Tuesday. AIG shares fell $1.20, or 5.32 percent, to $32 after a Wachovia analyst lowered his rating and earnings estimate for the beleaguered insurer.

General Motors Corp. saw the largest rebound among the 30 Dow stocks after announcing plans to lay off salaried workers, reduce truck production, suspend its dividend and borrow $2 billion to $3 billion as it adjusts to a weakening U.S. market. GM shares rose 46 cents, or 4.9 percent, to $9.84.

The Russell 2000 index of smaller companies fell 2.15, or 0.32 percent, to 662.35.

Declining issues outnumbered advancers by nearly 3 to 1 on the New York Stock Exchange, where volume came to 1.86 billion shares.

Overseas, Japan's Nikkei stock average fell 1.96 percent, Britain's FTSE 100 fell 2.42 percent, Germany's DAX index fell 1.91 percent, and France's CAC-40 fell 1.96 percent.

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