* House Republicans divided over solution to fiscal impasse
* Citigroup profit hit by bond trading slowdown, but shares rebound
* Volume reduced as investors watch fiscal negotiations
* Indexes off: Dow 0.3 pct; S&P 0.2 pct; Nasdaq 0.2 pct
By Julia Edwards
NEW YORK, Oct 15 (Reuters) - U.S. stocks were down on Tuesday in light trading as prospects for an agreement to end the U.S. government's fiscal impasse shifted from bright to dim during the day.
Policymakers in Washington have until Thursday to agree to extend the $16.7 trillion U.S. borrowing limit or the country will risk a debt default. The White House and Senate rejected the House's latest offer.
The uncertainty over how and when a deal will be reached kept investors from making big bets. Total U.S. market volume was 3.2 billion shares, lower than average.
"The expectation is that stocks will sink a little lower as the House takes more and more time to figure things out," said John Brady, managing director at R.J. O'Brien & Associates in Chicago.
Washington's stalemate distracted investors from the beginning of a busy week of earnings. Citigroup reported weaker-than-expected results as the bank was hit by a double-digit drop in bond trading revenue for the quarter. Shares fell, then recovered to trade up 0.1 percent at $49.65.
Markets have rallied in the past several days as optimism grew that lawmakers would agree to end the partial government shutdown and eliminate the risk of a U.S. default by approving more borrowing authority.
The White House and Democratic leaders in the Senate rejected a proposal on Tuesday from House Republican leaders that would temporarily open the government and extend borrowing authority by adding new requirements to President Barack Obama's healthcare law. Republican leaders also failed to get support for the plan from rank and file members within their party.
"The back-and-forth between the Senate and the House is causing a little bit of nervousness," said Anthony Chan, chief economist at J.P. Morgan Private Client Services.
"Historically, after these things resolve, the markets do rally. And the fact that the markets are still cautious now means that it is preventing investors from taking a strong position in any direction."
All ten S&P sectors were down except energy, which was up slightly at 0.1 percent.
The Dow Jones industrial average was down 45.37 points, or 0.30 percent, at 15,255.89. The Standard & Poor's 500 Index was down 3.84 points, or 0.22 percent, at 1,706.30. The Nasdaq Composite Index was down 6.21 points, or 0.16 percent, at 3,809.07.
Fedex, the world's No. 2 packaging company, said it has authorized a share repurchase program of up to 32 million of its outstanding shares of common stock. Fedex shares were up 4.7 percent to $120.71.
Shares of Teradata Corp fell 16.8 percent to $43.77, a day after the data analytics firm cut its full-year earnings forecast by about 10 percent.
Several other S&P 500 index components report results, including Yahoo Inc and Intel Corp after the closing bell.
Johnson & Johnson reported stronger-than-expected quarterly results on strong growth for its prescription drugs. The stock was up 0.5 percent at $90.27.
Coca-Cola Co reported higher earnings and lower revenue, helped by strong global sales of its Coca-Cola brand products. The shares were up 0.03 percent at $37.92.
Data showed the pace of growth in New York state's manufacturing sector slipped this month to its slowest since May, but business optimism stayed strong.