Stocks fell on Wednesday as hope faded that banks would use the European Central Bank's massive funding operation to buy regional sovereign debt and help mend the deep-rooted debt crisis.

Dragging the Nasdaq lower, Oracle Corp slumped 14.1 percent to $25.06. The world's No. 3 software maker posted earnings late Tuesday that fell short of Wall Street forecasts for the first time in a decade. The S&P technology sector <.GSPT> lost 2.3 percent.

Banks borrowed 489 billion euros ($641.08 billion) at the ECB's first-ever offering of three-year funding, initially boosting optimism that a credit crunch could be averted.

An Italian banking group said banks wouldn't increase their exposure to sovereign debt even after the ECB offering because European Bank Authority rules discourage it.

People aren't very sure where (the money) is going to be. The ECB's hope is that the banks will turn around and use that for government debt, said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois

The banks themselves are stronger, but it doesn't necessarily go toward solving the sovereign debt crisis. So it's a good step but it doesn't solve the whole problem.

The Dow Jones industrial average <.DJI> was down 29.74 points, or 0.25 percent, at 12,073.84. The Standard & Poor's 500 Index <.SPX> fell 4.00 points, or 0.32 percent, at 1,237.30. The Nasdaq Composite Index <.IXIC> took off 35.61 points, or 1.37 percent, at 2,568.12.

As the Christmas and New Year holidays approach, equities will likely to become more volatile as volume peters out.

U.S.-listed shares of Research in Motion Ltd jumped 7.5 percent to $13.46 after Reuters reported the BlackBerry maker had rebuffed takeover overtures.

The latest economic data showed sales of previously owned U.S. homes surged in November, but revisions to data for the last four years showed the housing market recession was deeper than previously thought.

Walgreen Co lost 5.8 percent to $31.56 after the largest U.S. drugstore chain posted lower quarterly profit on pressured margins.

Contract electronics manufacturer Jabil Circuit Inc posted first-quarter revenue below estimates and sees lower revenue in the second quarter. Shares fell 2.4 percent to $19.50.

(Reporting By Chuck Mikolajczak; editing by Jeffrey Benkoe)