Updated 12:09 p.m. ET

Stocks trimmed earlier losses as investors weighed the significance of economic bellwether FedEx's (FDX) cutting its outlook because of "weak global economic conditions" alongside improved homebuilder sentiment.

The Dow Jones Industrial Average ($INDU) was up 3 points at 13,556. The S&P 500 ($INX) was down 2 points at 1,459. The Nasdaq Composite ($COMPX) was down 2 points at 3,176.

FedEx (FDX) cut its second-quarter and 2013 outlooks because international clients have reduced premium shipping volumes. The package delivery company now projects second-quarter profit of $1.30 to $1.45 a share, which misses Wall Street's forecasts of $1.68 a share on average.

For 2013, FedEx now expects earnings of $6.20 to $6.60 a share, below its earlier forecast of $6.90 to $7.40. Analysts had expected fiscal 2013 earnings of $6.91 a share.

On Monday, U.S. stocks ended lower, breaking a five-day winning streak that took major indexes to multiyear highs last week.

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The current account deficit, the broadest measure of international trade in the U.S., shrank 12% to $117.4 billion in the second quarter, the Commerce Department said Tuesday. That is more than the $125 billion deficit economists had expected. A pickup in exports and a bigger income surplus helped narrow the deficit. If the slump in Europe and slowing China growth reduce demand for American goods, this will be hard to sustain.

Homebuilder optimism in September climbed for the fifth straight month to reach the highest level in more than six years, according to the National Association of Home Builders/Wells Fargo. The index gained 3 points to a seasonally adjusted reading of 40, above the 38 reading what economists polled by MarketWatch had anticipated. While the index has been climbing, it still isn't at the 50 level indicating "good" conditions.
 
Dispute between Japan and China escalating
Global stocks also retreated. In Asia, most markets closed lower as investor concern grew about the implications of a territorial dispute between China and Japan. The escalation of the conflict with several Japanese companies, including Nissan  (NSANY) and Panasonic (PC), suspended some manufacturing operations in China as anti-Japan protests spread.

In Europe, markets were generally lower, with investors focusing on a Spanish bill auction to see whether Spain will ask for aid. The Spanish Treasury sold slightly more Treasury bills than planned and paid lower borrowing costs than at the previous auction held a month ago.

Stocks to watch
AMD (AMD) shares dropped after the the chip-maker said late Monday that Thomas Seifert had resigned as the company's chief financial officer. Devinder Kumar, a corporate controller and a 28-year AMD veteran, will serve as the interim CFO.

Dole Food (DOLE) struck a deal to sell its worldwide packaged-foods unit and its Asian fresh-produce business for nearly $1.69 billion to Japan's Itochu Corp. The proceeds will be used to work to pay down debt as the company also embarks on a streamlining plan via cost-reduction measures.

Alpha Natural Resources (ANR) said it will cut 1,200 employees out of its workforce of 13,100 as part of an effort to save $150 million and scale down its thermal-coal operations. Alpha Natural plans to idle eight mines in Virginia, West Virginia and Pennsylvania.

Kohl's Corp. (KSS) said it will hire more than 52,700 temporary workers to staff department stores, distribution centers and back-office operations for the upcoming holiday season. That represents an increase of more than 10% from last year's holiday hiring.

Apple (AAPL) traded below $700 a share after briefly topping the milestone Monday on news that the company took more than 2 million preorders for the iPhone 5, more than double the initial preorder activity for the iPhone 4S. The new iPhone goes on sale Friday. Analysts at Sterne Agee upped their price target for Apple to $840 a share from $820 a share.