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Stocks Drop as Dollar Rallies; GE Climbs

Stocks fell Wednesday as a downgrade on Portugal's credit rating sent the dollar higher and stocks and commodities lower.

The Dow was down almost 40 points in midday trading, led by P&G , Verizon and Chevron .

GE and Bank of America were among the handful of gainers.

This came after Tuesday's rally as investors cheered a better-than-expected report on existing-home sales. All three major indexes hit fresh 1 1/2-year highs.

Art Hogan, the chief market analyst at Jefferies, said he thinks today's move was all Portugal-dollar-commodities but that the prognosis for the market is good.

"I really feel like this market is on a path higher in the near term," Hogan said. "The first quarter is about to wrap up and there are virtually no preannouncements from Corporate America — that means earnings are are going to be much better," Hogan said.

"I think there's another 10 percent to the upside by year end," Hogan said.

Fitch cut its rating on Portugalby one notch to AA- and warned that another downgrade could be on the way.

The dollar ralliedagainst the euro after the downgrade, which sent commodities prices lower. Oil dropped to near $80 a barrel, while gold fell to a six-week low,near $1,090 an ounce.

In this morning's economic news, new-home sales fell 2.2 percent to 308,000, the lowest on record, in February. Economists had expected to see a 1.9-percent increase. Still, the 2.2-percent decline is a much slower pace than the 11.2-percent drop recorded in January.

Orders for durable goods, big-ticket items such as cars and refrigerators, rose 0.5 percentin February as inventories increased by the most since December 2008. It was the third straight monthly increase but fell short of the 0.7-percent gain expected.

And mortgage applications fell for a second straight weeklast week as interest rates crept higher.

Treasury prices extended lossesas investors soured on the latest round of debt auctions, greeting a sale of five-year notes with low demand. The $42 billion sale fetched a high yield of 2.605 percent, and the bid-to-cover ratio was 2.55.

Kansas City Fed President Hoenig, the lone dissenter in the last Fed meeting, said at a conference this morning that some form of the "Volcker rule," which limits large financial firms' speculative trading, should be includedin financial regulation.

And, it's that time again: The quarter is winding down, so investors are starting to look at first-quarter earnings, which will start rolling out in earnest in a few weeks. Plus, next Friday brings the March employment report; right now, economists expect to see that 107,000 jobs were ADDED to nonfarm payrolls this month.

European stocks slipped after the Portugal downgrade. Investors were also keeping an eye on the UK's pre-election budget for insight into the current government's deficit-cutting plans. Asian stocks ended mostly in the green in the wake of Wall Street's performance.

The IPO market showed signs of life as broadband chipmaker MaxLinear, telecom equipment maker Calix Networks and First Interstate BancSystem shares surged after pricing higher than their expected ranges.

Bank stocks were mostly higher — Bank of America, JPMorgan and Citigroup shares rose.

Bank of America shot up more than 2 percent after CEO Brian Moynihan said the company plans to expand in China and elsewhere in Asia. At 1pm, the bank is expected to announce a program to start forgiving mortgage-loan principal for troubled homeowners.

Citigroup shares pushed higher after a wobbly morning after the company agreed to pay a $1.25 million fine to settle allegations by 35 U.S. states that its CitiFinancial unit failed to report 91,127 residential mortgage loans to the federal government as required by law.

JPMorgan, meanwhile, is close to a deal with the FDIC that could result in a $1.4 billion tax refund, the Wall Street Journal reports.

MF Global shares jumped more than 10 percent following news that Jon Corzine, the former Goldman Sachs CEO and New Jersey governor, was named chairman and CEO of the futures and options broker, which has posted a loss for the last four quarters.

Boeing shares advanced as the Pentagon is considering a multiyear purchase of the company's F-18 fighter planes.

On the earnings front, General Mills fell after the cereal maker reported its earnings rose in the latest quarter and raised its outlook but not by as much as analysts had expected.

Lennar jumped more than 5 percent after the homebuilder said its loss narrowed in the latest quarter as the company cut costs and offered fewer sales incentives, which helped margins. Plus, the company offered an encouraging outlook, saying its on track for a full-year profit as orders are on the rise and there have been fewer cancellations.

Adobe shares jumped more than 4 percent after the software maker

beat on both earnings and sales.

Jabil Circuit tumbled after the electronic-parts maker beat on profit but fell short on sales.

Darden Restaurants was also out with an after-the-bell earnings report, with the owner of Olive Garden and Red Lobster beating consensus forecasts.

Consumer stocks were mostly lower but Starbucks rose after the barista announced its first dividend payout, agreeing to pay shareholders 10 cents a share. The company is holding a shareholders meeting today in Seattle.

Tiffany shares fell after the luxury retailer announced it aims to increase its store count by as much as 8 percent per year in the near future and its operating margins could again hit all-time highs reached in 2007. The luxury retailer additionally reported strong holiday results on Monday.

And J.M. Smucker shares rose slightly after the peanut butter and jelly producer announced it would cut about 15 percent of its workforce as it plans to revamp its supply chain in a bid to boost profitability of its leading brands.

Still to Come:

THURSDAY: Toyota class-action hearing; weekly jobless claims; Fed's Pianalto speaks; seven-year auction; Earnings from Best Buy and Oracle
FRIDAY: Final read on Q4 GDP; consumer sentiment; Fed's Warsh, Bullard speak

Send comments to cindy.perman@nbcuni.com.