Stocks fell on Wednesday as rising yields on U.S. government debt sparked worries about how borrowing costs could be affected, reversing a more than 2 percent rally in stocks Tuesday.

Investors fear that if yields rise substantially, it will increase the cost of borrowing for consumers and corporations, hurting economic activity.

The Dow was weighed by declines in shares of International Business Machines and 3M Co , which benefited during Tuesday's rally.

The U.S. Treasury sold $35 billion in five-year notes earlier on Wednesday. The auction was generally well received in the bond market, but longer-dated bond prices started to fall not long after the results as investors reacted negatively to looming supply, driving up yields. The yields on bonds move inversely to their prices.

The decline in stocks was definitely being driven by the Treasuries sell-off, said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. Keep in mind the market is due for a pullback. Yesterday's rally was very broad and had ... good volume.

The Dow Jones industrial average <.DJI> dropped 109.51 points, or 1.29 percent, to 8,363.98. The Standard & Poor's 500 Index <.SPX> fell 9.94 points, or 1.09 percent, to 900.39. The Nasdaq Composite Index <.IXIC> lost 8.21 points, or 0.47 percent, to 1,742.22.

Semiconductor stocks kept Nasdaq losses in check after SanDisk Corp renewed a chip license with Samsung Electronics <005930.KS>, which pays about $350 million a year in royalties to SanDisk for its patented technology. Shares of SanDisk rose 14.7 percent to $15.58.

Shares of General Motors were down 18 percent to $1.18 as the automaker faced a failed debt exchange, setting the stage for a bankruptcy filing expected by the end of the month.

Since reaching a low in early March, the Dow has gained more than 29 percent and the S&P 500 has risen nearly 35 percent.

(Additional reporting by Chuck Mikolajczak; Editing by Leslie Adler)

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