Stocks fell on Wednesday as Germany's decision to ban naked short-selling of certain financial instruments fanned investor worries about exposure to riskier assets and about the global economy.
Shares of industrial companies, which tend to rely heavily on overseas sales, led losses. Caterpillar was down 3.3 percent at $61.09, while shares of Boeing was down 2.9 percent at $65.72. Microsoft , down 1.1 percent at $28.29, was among the top drags on the Nasdaq.
We still have a great deal of uncertainty from the overseas markets. We really don't know how far things can spread, so basically you see a continuation in the contraction of risk spreads, said Steve Goldman, market strategist at Weeden in Greenwich, Connecticut.
European and Asian stocks also tumbled on Germany's news. Worries about European debt problems and their impact on the global economy have kept investors on edge for weeks.
Germany banned naked short sales of euro-denominated government bonds, credit default swaps based on those bonds and shares of the country's 10 leading financial institutions in a move that appeared to catch its partners in the European Union off guard.
The Dow Jones industrial average <.DJI> was down 76.63 points, or 0.73 percent, at 10,434.32. The Standard & Poor's 500 Index <.SPX> was down 5.95 points, or 0.53 percent, at 1,114.85. The Nasdaq Composite Index <.IXIC> was down 17.81 points, or 0.77 percent, at 2,299.45.
All three indexes had been down more than 1 percent, and the S&P 500 briefly pierced 1,102.12, its 200-day moving average, seen as a support level. The index bounced back a bit since then, but a close below it could trigger more selling, analysts said.
In naked short selling, a trader sells a financial instrument, betting that its price will fall, without first borrowing the instrument or ensuring that it can be borrowed, as in a conventional short sale.
German Chancellor Angela Merkel said in a speech to parliament the euro was in danger, urging speedy action to stop market extortion, and said the EU needed a process for orderly insolvency of its members.
Later Wednesday, the Federal Reserve's policy-making committee will release minutes from its most recent meeting.
On the upside were shares of Hewlett-Packard Co . H-P's stock added 0.7 percent to $47.11 after the world's largest technology company by sales reported quarterly results that beat expectations and raised its full-year earnings outlook.
(Reporting by Caroline Valetkevitch; Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)