Risk appetite faded as concerns about the financial health of Spain - Europe's fourth-largest economy - pushed up demand for U.S. Treasuries and government bonds of the euro zone's most stable nation, Germany.
Oil prices fell, with London's benchmark Brent crude closing 81 cents down at just below $118 a barrel as a rising reserve of U.S. crude pointed to weakening demand for fuel ahead of the peak summer driving season in the United States. <O/R>
Gold prices were also down, slipping for a fourth straight session to below $1,640 an ounce as investors looked past the precious metal's traditional strength as a safe-haven and viewed it more as an asset weakened by the dollar's rise. <GOL/>
On Wall Street, the S&P 500 .SPX fell by nearly half a percent after rising three times as much on Tuesday -- 1.5 percent -- for its largest gain in a month.
"If you want to be an optimist, you could point to the fact that the market didn't sell off all that much, given the solid advance we saw yesterday," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
Technology bellwethers such as IBM (IBM.N) and Intel (INTC.O) weighed on the broader Dow index .DJI after quarterly earnings that impressed few investors, unlike Tuesday's strong results from Goldman Sachs (GS.N), Coca Cola (KO.N) and Johnson & Johnson (JNJ.N).
Of the 66 S&P 500 companies reporting through Wednesday, some 80 percent beat Wall Street estimates.
"A consolidation or correction phase in the second quarter would make the most sense, and probably it would be the most healthy thing for the market," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, Tennessee.
Tim Speiss, partner at Eisner Amper in New York, had a similar view, saying large run-ups can be unsettling to the market "because investors question if that is going to hold."
The Dow Jones industrial average .DJI ended down 82.79 points, or 0.63 percent, at 13,032.75. The Standard & Poor's 500 Index .SPX was down 5.64 points, or 0.41 percent, at 1,385.14. The Nasdaq Composite Index .IXIC was down 11.37 points, or 0.37 percent, at 3,031.45.
Chesapeake Energy (CHK.N) was the most actively traded stock, slumping as much as 9 percent before ending nearly 6 percent lower -- its biggest loss in three months - after a Reuters report highlighted large and unusual personal loans to its chief executive.
European shares edged lower too, with Europe's key stocks gauge .FTEU3 settling down 0.7 percent. World equities .MIWD00000PUS fell 0.2 percent.
German bunds drew support from signs that the Bank of England and European Central Bank were unlikely to agree to more monetary policy easing to support euro zone growth.
Germany auctioned off 4.2 billion euros ($5.5 billion)in two-year bonds at a record low yield of just 0.14 percent.
U.S. Treasuries rose as the prospect of a longer-term Spanish debt auction made safe-haven U.S. Treasuries a popular investment choice. The benchmark 10-year U.S. Treasury note was up 5/32, with the yield at 1.977 percent. <US/>
The euro fell against the dollar after a brief rebound that hinted at some risk play in currencies. But the biggest surprise in forex was sterling's rise to 19-month highs on signs that there may be less pressure for monetary easing in Britain. <FRX/>
(Additional reporting by Richard Hubbard in London; Editing by Chizu Nomiyama and Dan Grebler)
Reuters
