Stocks closed sharply lower as bond yields rose and higher oil prices sent energy shares tumbling.
The Dow Jones Industrial Average finished down nearly 150 points.
"Some traders feel the price of oil was a factor today," Peter Costa, senior managing director at Lipari Partners, told CNBC.com. "A lot of people are just refiguring where they want to be. Over the last couple of weeks, interest rates have been very important to the market - maybe not so much today - but concern about what is going to happen with the Fed is making things tenuous."
"We have run out of some of that enthusiasm that we had last week," Dan Morgan, portfolio manager at Synovus Securities, told CNBC.com. "People are starting to realize higher yields means interest rates are going to be higher and that will eventually slow the economy."
The consumer discretionary sector was the best performer throughout the session. Energy was the worst performing sector due to the decline in oil prices. ExxonMobil helped to drag down the Dow as the biggest percentage loser, dropping more than 2%. Home Depot was the best percentage gainer on the Dow, rising almost 6% on a stock buyback announcement.
"We've had such strong gains, I think it's general concern among professional investors that we went a little far a little fast and maybe we are faced with a bit of a valuation problem on a short-term basis," said Hugh Johnson, chief investment officer at Johnson Illington Advisors.
The Energy Information Administration said oil stockpiles rose 6.9 million barrels last week. Analysts were expecting a slight draw down. Gasoline inventories also rose last week by 1.8 million gallons. And refinery utilization decreased by 1.6% last week to 87.6%. Analysts had been expecting utilization to increase.
"The build in crude is surprisingly large," said Arthur Gelber, president of Gelber & Associates. "With utilization at the refinery level down, it's very possible that stable imports, consistent production and a lack of the ability to run the crude oil through the refineries has made oil stocks increase at a much, much faster rate than anyone anticipated."
New York light sweet crude futures fell more than a dollar a barrel on the news before paring losses to trade above $68 a barrel again.
Stocks bounced around much of the session before turning firmly lower in afternoon trading as investors kept a close eye on bond yields.
"On a temporary basis, interest rates are definitely having a dramatic influence on the short-term daily activity of stock trading," said Sean Clark, chief investment officer at Clark Capital Management. "I think right now stocks are consolidating for a run higher through the remainder of the summer."
"I believe interest rates are going a lot higher from here and this is just a taste of what's to come," said Peter Schiff, president of Euro Pacific Capital. "In the coming months, you're going to see interest rates rising and ultimately that's going to take its toll on earnings as well."
Treasury prices ticked lower, sending the yield on the 10-year Treasury note to 5.14%.
Shares of Home Depot rose sharply after the Dow component announced a $22.5 billion stock repurchase plan.
Dow component Pfizerhelped to weigh on the index after it discontinued trials of an experimental lung cancer drug licensed from Coley Pharmaceutical Group.
Morgan Stanley said
Circuit City posted a quarterly loss and withdrew its outlook, citing an uncertain macroeconomic environment.
Circuit City's earnings report comes a day after Best Buy disappointed investors with an unexpected drop in profit.
Delivery company and Dow-transport component FedEx reported its fiscal fourth-quarter net income rose more than 7%, but the company also said a slowing economy was limiting demand for transportation services.
Kirk Kerkorian's Tracinda Wednesday backed off plans to restructure MGM Mirage
MGM's shares fell on Kerkorian's change of heart.
And shares in Bear Stearns fell as two of the bank's big hedge funds neared collapse Tuesday night after Merrill Lynch rejected a bailout plan it had been developing, the Wall Street Journal reported.
European Shares Close Mostly Higher
European share indexes shrugged off disappointing corporate news to finished mixed.
The London FTSE-100 finished basically flat, while the Paris CAC-40 and Frankfurt DAX closed higher.
Shares in Deutsche Telekom rose on reports the company struck a deal with unions over wage negotiations. Wages are to be cut by 6.5%, but employees will be eligible for a one-off compensation payment.
And the U.K. retail sector saw more disappointing news after supermarket chain J. Sainsbury reported comparable sales excluding fuel slightly below expectations, affected by tightening interest rates in Britain. Leading supermarket Tesco reported disappointing sales on Tuesday
Sainsbury's shares remained largely flat despite a positive FTSE-100.
Also in retail news, shares in Hennes & Mauritz slumped as the Swedish fashion giant missed expectations with its second-quarter pretax profit and May sales.
On the economic front, Germany's Producer Price Index, which measures wholesale inflation, rose faster than expected in May, according to results from the government statistics office.
Asian Stocks Mostly HigherAsia stocks edged higher in the afternoon session as Hong Kong's Hang Seng Index and Singapore's Straits Times Index led the way with record-breaking runs.
Japan's Nikkei 225 hit a 3-1/2 month high but analysts said the market might see some profit-taking when the benchmark hits the 18,300 mark.
Bridgestone shares were on the move this session following a brokerage upgrade. Goldman Sachs added the tiremaker to its 'Conviction Buy' List after noticing declines in natural rubber prices and increase demand in the U.S. and Europe.
Shares of JVC slipped more than 4% after Nikko Citigroup commented that its earnings will come in below forecasts. The brokerage also added that managerial confusion at the company could take a toll on the business.
Seoul shares moved lower. The benchmark KOSPI dropped 1.3%, after scoring a record 1,813.84 on Tuesday.
Banking shares rose on plans to move in to the brokerage sector. Kookmin Bank reached a record high 3.73% to 8,900 won, on news it may make a takeover offer for a local securities firm.
Australian shares reversed early morning declines. The benchmark S&P/ASX 200 index rose as increases in property plays offset losing miners.
Shares of Coca-Coal Amatil jumped over 2% to A$9.44 after Citigroup started coverage on the soft drinks firm with a buy rating.