Remarks by Federal Reserve Chairman Ben Bernanke that dimmed hopes for a third round of bond-buying erased the stock market's gains Thursday.

In a second day of testimony, Bernanke told lawmakers that the Fed was not taking more action to stimulate the economy.

That cut short a morning rally. The markets had started the day higher after JPMorgan Chase announced strong earnings and the government reported fewer people sought unemployment benefits last week. The Dow Jones industrial average rose as many as 90 points.

Stocks had rallied for much of Wednesday after Bernanke left the door open to new economic stimulus measures, but only if the economy worsened. Investors took those earlier remarks to mean that the Fed chairman had all but guaranteed new action to stimulate the economy, said Jeff Cleveland, senior economist at money manager Payden & Rygel.

"They realize that's not the case now," Cleveland said.

The Standard & Poor's 500 index fell 4 point, or 0.3 percent, to 1,314 in afternoon trading. The Dow Jones industrial average fell 7, or 0.1 percent, to 12,484. The Nasdaq composite fell 25, or 0.9 percent, to 2,772.

JPMorgan Chase & Co. rose 3 percent after the bank reported that higher investment banking fees raised its net income above analysts' expectations.

ConocoPhillips rose 4 percent after the country's third-largest oil company said it would split in two. One company will be an oil producer, and the other a refinery. Investors preferred two simple businesses to one complicated one.

Applications for unemployment benefits fell to a three-month low last week, a sign that companies are laying off fewer workers. At 405,000, the figure is still above the 375,000 that signals healthy job growth.

In a separate report, the government also said an increase in car sales and a drop in gas prices pushed up retail sales slightly in June.

Stocks were also dampened by a warning on the U.S. debt rating as a stalemate continued in Washington over raising the government's borrowing limit. Moody's threatened late Wednesday to lower the U.S. credit rating below the highest grade of triple-A, citing the risk that the government might fail to make its debt payments if an agreement isn't reached by an Aug. 2 deadline.

In Europe, a threat resurfaced that Italy's government could lose control of the country's debt crisis. Yields on Italy's debt jumped to their highest level since the introduction of the euro following a bond sale. A debt default for an economy as large as Italy's would hurt lending across the globe.

Marriott International Inc. fell 8 percent after the hotel chain said it would earn less in the full year than previously expected.

YUM Brands Inc. rose 1.2 percent after the owner of the Pizza Hut, Taco Bell and KFC fast-food chains said its earnings rose on strong international sales.

Google Inc. is scheduled to release its earnings after the closing bell.