Stocks fell on Wednesday as weak earnings from Oracle raised concerns about the health of the tech sector ahead of the start of fourth-quarter earnings season in January.

Sentiment also fell on concerns that cut-rate loans from the European Central Bank's recent funding operation will not be used to buy Italian and Spanish debt, which would help lower elevated yields and lower pressure on refinancing for the debt-stricken countries.

Oracle Corp. , the world's No. 3 software maker, joins a growing list of companies, including some of technology's biggest and oldest names, whose results and outlooks have raised alarm bells about business conditions.

Oracle results were very bad and they provide a wet blanket for corporate tech spending as we go into the new year, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

Capital spending was supposed to be one the bright spots for U.S. markets and comments from Oracle throw that into doubt, he said.

Oracle's shares slumped 13.5 percent to $25.22 after the company's results missed Wall Street's forecasts for the first time in a decade. Shares of other tech companies also fell. IBM was the biggest drag on the Dow, down 3.8 percent to $179.99, and the Philadelphia semiconductor index <.SOX> fell 1.9 percent.

The Dow Jones industrial average <.DJI> dropped 50.56 points, or 0.42 percent, to 12,053.02. The Standard & Poor's 500 Index <.SPX> fell 5.32 points, or 0.43 percent, to 1,235.98. The Nasdaq Composite Index <.IXIC> lost 46.91 points, or 1.80 percent, to 2,556.82.

In Europe, banks took nearly 490 billion euros in three-year cut-price loans from the European Central Bank on Wednesday. Markets had run up ahead of the tender, but a widening of the yield spread between German and Italian debt suggested that money was not flowing where it is most needed.

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

Ryan Larson, head of equity trading at RBC Global Asset Management in Chicago, said unconfirmed talk was circulating in the market that banks would use ECB loans to buy German bonds and not to support the debt of Spain and Italy.

That kind of spooked the market, he said. While it is a positive development in terms of the lending facility there are still a lot of problems out there.

He said he was not able to confirm any of the market speculation.

Tuesday's rally had lifted the S&P 500 above its 50-day moving average. Many investors and traders are looking for a seasonal Santa rally into the end of the year and are keen to jump on any signs of momentum.

A lot of money managers have underperformed the market and it puts on a little pressure to be invested, said Eric Kuby, chief investment officer for North Star Investment Management Corp. in Chicago. If you don't think there's a big sell-off coming, you're probably looking to buy stocks on any dip.

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

U.S.-listed shares of Research in Motion Ltd jumped 11 percent to $13.90 after Reuters reported that Amazon and other potential bidders had been looking at making an offer for the BlackBerry maker, although interest had cooled somewhat.

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.

Shares of Walgreen Co lost 2.7 percent to $32.56 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 5.2 percent to $18.91.

(Reporting by Edward Krudy; Editing by Leslie Adler)