Oil prices tumbled after the U.S. DOE announced it will release 30 million barrels from the Strategic Petroleum Reserve as part of the overall International Energy Agency's release of 60 million barrels per day. U.S. light, sweet crude tumbled $4.39 a barrel, or 4.6 percent, to settle at $91.02 a barrel, while London Brent crude fell $6.95, or 6.09 percent, to settle at $107.26. (ReadMore: Oil Prices Were Already Falling, So Why Tap Reserves Now?)
"This oil [news] is actually good for the economy long-term, but short-term, it's going to hurt the Dow because of Chevronand ExxonMobil make up [more than] 10 percent of the Dow," Dave Rovelli, managing director of equity trading at Canaccord Genuity told CNBC.
Oil giants including ExxonMobil , Chevron and ConocoPhillips were all in the red, while the XLE Energy ETF slid to trade below its 200-day moving average.
Meanwhile, airlines including AMR and U.S. Airways jumped amid prospects for lowered gas costs. Cruise lines including Carnival and Royal Caribbean were also higher.
Fed chairman Ben Bernanke acknowledged that the pace of the economic recovery is slower than expected on Wednesday, but offered no hint about plans for new stimulus measures.
On the economic front, new claims for unemployment benefits posted a surprise gain of 9,000 last week, to a seasonally adjusted 429,000 according to the Labor Department. Economists expected claims to edge up to 415,000.
Gold snapped a four-day rallyto plunge $32.80, or 2.11, settling at $1520.10 an ounce, as the dollar gained.
Materials slumped amid the commodities retreat with Dow Chemicals , Newmont and BHP ending lower.
Meanwhile, Bristol-Myers Squibb and Pfizer climbed after the pharma companies announced that a blood thinner they developed proved safer than the current treatment in preventing strokes.
Tech rebounded, led by Western Digital and Seagate Tech , which helped cut losses on the Nasdaq. Smartphone makers Apple and Research In Motion were also trading higher.
However, Google slipped after news the Internet giant is to receive a subpoenafrom the Federal Trade Commission as part of a probe into the firm's search business, according to the WSJ.
In earnings news, Rite Aid gained after drugstore chain posted a lower-than-expected quarterly loss. Lennar also rose after the homebuilder's profit fell, but still beat what analysts were expecting.
Oracle is slated to post earnings after-the-bell tonight.
Some strategists believe stocks will grind lower until earnings season kicks off in mid-July.
"Given the pessimism we’re seeing, if we see a sharply good earnings season, that probably is not built into prices at this point and that could be a good solid catalyst," according to Bruce McCain, chief investment strategist at Key Private Bank. "But on the flipside, with some of the spreading risks out there with slowing growth and the potential risk of a sovereign debt meltdown [in Europe], this is a time to be more careful in allocations and weary and watch the statistics."
Also on the economic front, new home sales fell in Mayfor the first time in three months, but inventories reached record lows while the median sales price rose slightly, according to the Commerce Department.
European shares fell to a three-month lowas investors trimmed their exposure to riskier assets following weak economic news and data.
Coming Up This Week:
THURSDAY: Earnings from Oracle
FRIDAY: Durable goods, GDP, corporate profits
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