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Stocks End Lower After Fed, Euro Zone Worries

Stocks closed lower Wednesday after a tepid Fed report on the economy and following news that talks to come up with a euro zone debt solution between France and Germany have stalled ahead of a key EU summit this weekend.

The Dow Jones Industrial Average slumped 72.43 points, or 0.63 percent, to finish at 11,504.62. Alcoa and BofA led the blue-chip index lower, while Travelers gained.

The S&P 500 slid 15.50 points, or 1.26 percent, to end at 1,209.88. The Nasdaq dropped 53.39 points, or 2.01 percent, to close at 2,604.

Still, October remains on track as the best month for stocks since Sept. 2010.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped near 35.

Most S&P sectors finished in the red, led by materials and techs. Utilities finished slightly higher.

“We’re at the top end of a recent trading range between 1,075 and 1,225 on the S&P,” said Paul Zemsky, CIO of Multi Asset Strategies at ING Investment Management. “What’s going to break us out to the upside would have to be some credible resolution in the EU for the banking situation…which will bring the S&P up to 1,300 in a matter of weeks.”

But for the time being, Zemsky said the market will stay locked in the current range.

French President Nicolas Sarkozy flew to Frankfurt to talk with German Chancellor Angela Merkel in a last-minute "informal working meeting" ahead of the much-awaited EU summit in Brussels over the weekend. However, the talks have stalled between the two European powerhouses over how to increase the firepower of the region's rescue fund, according to Sarkozy.

Meanwhile, economic activity in 12 major U.S. regions expanded at a modest pacein September and early October, but outlook continues to remain weak, according to the Federal Reserve's Beige Book report.

Among earnings, Morgan Stanleyeasily outstripped analyst estimates, though much the beat was due to an accounting move that also has helped its peers.

"It's tough to get excited about banks right now...when the earnings season is done it's going to look like Goldman's report on a broader basis," Rob Morgan, chief investment analyst at Fulcrum Securities told CNBC.

Goldman Sachs reported a loss of $428 million on Tuesdayas revenue from underwriting stocks and bonds plunged. Meanwhile, at least five brokerages cut their price targets on the financial giant.

Meanwhile, Travelers posted a much lower-than-expected profit as the insurance company took a hit from a surge in catastrophic claims. However, shares rallied after the firm said it is seeing stronger pricing across all insurance lines and that it would ramp up share buybacks dramatically in the current quarter.

Fellow Dow component United Technologiessaw a major profit surgeon solid sales across its aerospace and commercial construction units.

Apple tumbled after the iPhone maker missed analyst forecastsfor the first time since 2004 on Tuesday, but some analysts called the results a blip and said it presented a buying opportunity. Wedbush raised its price target on the firm to $535 from $530.

Meanwhile, Intel beat expectations, offering some support for the technology sector. In addition, at least eight brokerages raised their price targets on the firm.

American Express and Ebay are slated to post earnings after-the-bell tonight.

Abbott Laboratories jumped following news the pharmaceutical company will split into two publicly traded firmsto better ensure growth.

In other company news, Groupon is planning to launch its IPO roadshow early next week, two sources familiar with the situation told Reuters.

On the economic front, housing starts surged 15 percent in September, their fastest annual pace in 17 months, according to the Commerce Department.

"A strong residential construction number is a welcome relief for an economy struggling to hang on to expansion and a hopeful harbinger of better days to come," according to Celia Chen, Senior Director of Housing Economics for Moody's Analytics. "Caution, however, needs to be taken in interpreting the surprisingly strong top-line housing starts for September...Whether this momentum persists, depends on the economy staying out of recession."

U.S. consumer prices gained slightly, according to the Labor Department.

Weekly mortgage applications slumped almost 15 percent last weekas demand for both refinancing and purchases evaporated, while interest rates climbed, according to the Mortgage Bankers Association.

—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC

On Tap This Week:

THURSDAY: Jobless claims, existing home sales, Philadelphia Fed survey, leading indicators, Fed's Bullard and Kocherlakota speak, NewsCorp investor day; Earnings from AT&T, Eli Lilly, Nokia, AutoNation, Microsoft, Capital One, Chipotle and SanDisk
FRIDAY: Fed's Kocherlakota speaks, 2011 Dodd-Frank Rulemaking Deadline; Earnings from GE, McDonald's, Verizon, Honeywell and Schlumberger

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