Stocks fell on Wednesday as Portugal's credit rating downgrade and a weak Treasury note auction stirred concerns about sovereign debt.
Major indexes eased a day after hitting 18-month highs, with losses across most sectors on light volume. Worries centered on countries' ability to pay their debt, bolstering the dollar and hurting commodity-related stocks.
Portugal's rating was lowered by one notch to AA-minus, compounding problems in the euro zone, where diplomats have still not agreed on a safety net for heavily indebted Greece.
This raises further concerns about other countries in the area and the markets are haunted by the lack of clarity on how Europe will deal with the issues, said Todger Anderson, president of Westcore Funds in Denver, Colorado.
Sentiment also soured after a weak auction of five-year U.S. Treasury notes, the second lackluster debt sale after Tuesday's tepid auction of two-year notes.
The Dow Jones industrial average <.DJI> fell 52.68 points, or 0.48 percent, to close at 10,836.15. The Standard & Poor's 500 Index <.SPX> slipped 6.45 points, or 0.55 percent, to end at 1,167.72. The Nasdaq Composite Index <.IXIC> dropped 16.48 points, or 0.68 percent, to close at 2,398.76.
CHEVRON SLIPS, GENZYME SLIDES
The Portugal credit rating downgrade drove the dollar up against the euro, which in turn pushed down prices of commodities denominated in the greenback. U.S. crude oil futures for May lost 1.6 percent, or $1.30, to settle at $80.61 per barrel.
Oil prices also declined after data showed U.S. crude inventories rose nearly five times more than expected last week, a bearish sign for demand.
Limiting the Dow's decline was Bank of America Corp
The biggest drag on the Nasdaq was Genzyme Corp
On the earnings front, General Mills
Homebuilder Lennar Corp
Data released earlier in the day sent mixed signals about the economy, with new home sales unexpectedly falling to a record low in February, but new orders for durable manufactured goods rose for a third straight month in February.
This is just a continuation of the weak trend we've seen, Anderson said. It isn't surprising, but it did add to the sell-off that started with Portugal.
The session's declines follow the market's push to 18-month highs on Tuesday, with the Dow racking up a 10th day of gains out of the past 11 sessions.
For the month so far, the S&P 500 is up about 6 percent.
About 8.48 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, below last year's estimated daily average of 9.65 billion.
Decliners outnumbered advancers by a ratio of 2 to 1 on the New York Stock Exchange, while on the Nasdaq, more than nine stocks fell for every four that rose.
(Editing by Jan Paschal)