Stocks ended lower after a late selloff Tuesday. It was a see-saw session as investors cheered a pair of encouraging U.S. manufacturing reports but many worries still nagged at the market.
The Dow Jones Industrial Average lost 112.61, or 1.1 percent, to close at 10,024.02, after sliding more than 80 points at the open and then bobbing in and out of positive territory throughout the day. This came after the Dow logged its biggest May point drop in history and its worst percentage decline since 1940.
The Nasdaq shed 1.5 percent and the S&P 500skidded 1.7 percent. The CBOE volatility index, widely considered the best gauge of fear in the market, was above 34 at the market's close.
Energy stocks were among the biggest decliners after BP's latest effort to cap the Gulf oil spill failed, prompting worries about future profits in the sector. Oil fell more than $1 to settle at $72.58 a barrel.
US-traded shares of BP fell 15 percent, as did Halliburton , which did some work on the well. Transocean , which owns the rig, lost 12 percent.
Consumers moved toward safer plays, with consumer staples and telecoms the day's best performers.
Alcoa was the biggest drag on the Dow; Kraft and Walmart were among the handful of Dow gainers.
The ISM reported its manufacturing index dropped to 59.7 in May from 60.4 in April but remained in growth mode for a 10th straight month and beat expectations. Plus, a gauge of employment rose.
A separate report showed construction spending rose 2.7 percent in April and the prior month was revised upward to a 0.4-percent increase from 0.2 percent.
Some good news on the jobs front: A quarter of employers said they plan to pay higher salaries to new hires, up from 10 percent six months ago, according to a survey by Dice Holdings.
Still, Gary Kaminsky, a trader and CNBC contributor said this isn't the all-clear sign for investing in stocks.
"[M]y call to action today: Stay small. Don't be afraid of cash."
Kaminsky says there are four outstanding issues before the market can move higher, including the Goldman Sachs case and the impact of the European debt crisis on earnings.
Earlier, stocks had been lower after reports showed a slowdown in manufacturing activity in Europe and Asia.
The euro extended its longest monthly decline versus the dollar in 10 years. The dollar rose 0.67 percent against a basket of foreign currencies.
The euro "is having a rough month, it's having a rough year… it's probably going to continue to have rough times ahead," said Dennis Gartman, author of "The Gartman Letter." "Are we going under $1.20? Almost certainly," he added.
In the credit market, the three-month Libor actually slipped a bit, but the Ted Spread , or the difference between the Libor rate and three-month Treasury bills, grew 4 percent.
Canada raised its key interest rate by a quarter percentage point to 0.50 percent, making it the first G7 nation to raise rates.
Hewlett-Packard bounced back after the company said it was going to spend $1 billion on a relaunch of its enterprise serviceswhile cutting 6,000 employees.
Apple rose after the company said it has sold 2 million of its iPad tablet computers since the U.S. launch nearly two months ago and the unveiling in nine international markets this past weekend.
Google said it's phasing out use of Microsoft's Windows operating system at its offices due to security concerns after its Chinese operations were hacked. Google employs more than 10,000 workers.
In M&A news, Prudential and AIG shares rose after AIG rejected a request to cut the price of Prudential's $35.5 billion offer for AIA Group, fueling speculation the takeover is off and AIG will press on with its IPO, expected by October.
And shares of ev3 jumped following news that Covidien has agreed to the buy the vascular-treatment company for $2.6 billion.
Volume was slightly more than average, with 1.4 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, nearly 4 to 1.
Still to Come:
WEDNESDAY: Weekly mortgage apps; Buffett speaks at FCIC hearing; pending-home sales; May auto sales; earnings from Hovnanian
THURSDAY: May chain-store sales; Blagojevich trial begins; Fed's Lockhart, Hoenig speak; ADP employment report; weekly jobless claims; productivity; factory orders, ISM services index
FRIDAY: May jobs report; Fed's Lockhart speaks; Walmart shareholder meeting; Sprint's first 4G phone goes on sale