By Xie Yu, Anna Hirtenstein and Caitlin McCabe 

U.S. stocks finished slightly lower Tuesday, erasing earlier gains, buoyed by indications that the spread of the coronavirus pandemic was slowing in some hot spots around the world.

The Dow Jones Industrial Average slipped 26 points, or 0.1%, after rising more than 930 points earlier in the session. The S&P 500 and the Nasdaq Composite also declined, losing 0.2% and 0.3%, respectively.

Small signs of success from global social distancing measures drove the market higher earlier in the day. In New York, Gov. Andrew Cuomo said Tuesday that the state has projected that it is reaching a plateau of daily hospitalizations. Globally, countries including Spain and Iran have seen the daily toll of new infections and deaths flatten. Wuhan, the Chinese city where the virus was first detected, prepared to lift its travel ban at midnight Tuesday.

"It's hard to reject the view that things are improving," said Paul O'Connor, head of multiasset at Janus Henderson. "Markets have been celebrating this in the last couple of days."

Still, the trends are preliminary and authorities have warned that the coronavirus infections in the U.S. and U.K. are likely to worsen in the coming week. Even as intubations and demand for intensive care units have decreased in New York, Mr. Cuomo said Tuesday that the state reported its highest number of deaths in a single day. So far, nearly 5,500 people have died from the virus in the state, a large portion of the nearly 12,000 deaths across the country.

Even more, economic indicators have shown that a deep recession may be looming. The Mortgage Bankers Association said Tuesday that mortgage forbearance requests surged in the second half of March as millions of Americans sought unemployment benefits after the pandemic shuttered businesses.

Plenty of investors remained skeptical about the recent rally.

Ken Moraif, founder of Retirement Planners of America, said he doesn't believe a small drop in daily infections bodes well for the overall economy. He said his company, which had $4.5 billion in assets under management at the end of 2019, has sold all equity and bond positions, opting instead for cash.

"I'm having difficulty in understanding how a small business that has gone bankrupt is going to go back into business because we have reached the peak of infections," Mr. Moraif said.

"I just think this is slowly degrading like the Titanic, and the people who are buying right now don't believe how bad this really is," he continued.

Markets have swung sharply in recent weeks as investors have tried to make sense of a fast-spreading pandemic that has warranted unprecedented responses by the Federal Reserve and U.S. government. If the Dow closes up or down more than 1% Tuesday, it would extend the streak of such moves to 13 sessions.

The energy and materials sectors led afternoon gains in the S&P 500. Travel and leisure stocks were again among the best performers. American Airlines Group rose nearly 8%, JetBlue Airways jumped 13%, and United Airlines added almost 2%.

Among cruise stocks, Royal Caribbean Cruises gained 13%, Carnival jumped 10%, and Norwegian Cruise Line Holdings rose 10%.

Meanwhile, in London, EasyJet soared 20% after the carrier tapped a U.K. government-aid program for short-term credit. The company's ability to access the funding suggests that it could withstand the economic downturn, provided that the spread of the coronavirus continues to slow, according to Michael Hewson, chief market analyst at brokerage CMC Markets.

"Markets are pricing in a return to normality for airlines sooner rather than later," Mr. Hewson said.

Investor optimism Tuesday came even after global leaders and corporate executives warned that a U.S. recession could be deep and severe. Former Federal Reserve Chair Janet Yellen said Monday in an interview on CNBC that she expects the U.S. economy to decline at least 30% in the second quarter. She also said she was "afraid we will see bankruptcies" and that "companies may end up with debt burdens that make them unwilling to restore investment spending or re-hire workers."

Additionally, JPMorgan Chase Chief Executive James Dimon said in his annual letter Monday that he expects a "bad recession."

Investor appetite for risk Tuesday prompted some investors to sell the safest government bonds. The yield on the 10-year U.S. Treasury note rose to 0.738%, from 0.675% Monday. Yields rise as bond prices fall.

In currency markets, the ICE Dollar Index slipped 0.7%. The greenback has been wavering amid renewed risk appetite, according to Jordan Rochester, a currency strategist at Nomura.

Meanwhile, oil prices fell after starting the day higher. Brent crude, the global gauge of oil prices, slid 3.2% to $32.01 a barrel as demand for oil has fallen during the pandemic.

Beyond the U.S., the pan-continental Stoxx Europe 600 ended the day higher, rising 1.9%. Japan's Nikkei 225 and China's Shanghai Composite both rose more than 2%.

"People are trying to identify risks and opportunities now," said Bruce Pang, head of macro and strategy research at China Renaissance Securities. The outbreak's arc in China shows that the new coronavirus and measures to contain it would lead to slower growth, rising unemployment, sluggish demand, disrupted supply chains and more defaults, he cautioned.

At the same time, "China's case shows when new infections peaked out, the market would bottom out," and this is what global investors now expect, Mr. Pang added.

Write to Xie Yu at Yu.Xie@wsj.com, Anna Hirtenstein at anna.hirtenstein@wsj.com and Caitlin McCabe at caitlin.mccabe@wsj.com

(END) Dow Jones Newswires

April 07, 2020 16:26 ET (20:26 GMT)