Stocks Log Worst One-Day Drop in a Month on North Korea Fears

Stocks finished sharply lower Wednesday, with the S&P 500 and Nasdaq falling 1 percent each, amid building worries over North Korea and after San Francisco Federal Reserve Bank President John Williams said the central bank could begin to taper purchases this summer if the economy continues to improve.

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S&P 500

The Dow Jones Industrial Average dropped 111.66 points, or 0.76 percent, to end at 14,550.35, led by Bank of America and JPMorgan, after hitting fresh intraday and closing highs in the previous session.

The S&P 500 fell 16.56 points, or 1.05 percent, to close at 1,553.69. The index has alternated between gains and losses for the 10th consecutive session. The last time the index saw such a pattern was in April 2002. The Nasdaq tumbled 36.26 points, or 1.11 percent, to finish at 3,218.60.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped above 14.

All key S&P sectors finished in negative territory, led by financials and energy.

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Stocks took another leg lower in the final hour of trading after San Francisco Federal Reserve Bank President John Williams said the central bank could start cutting back on its bond-buying program this summer if the economy continues to pick up steam.

Williams pegged growth at 2.5 percent in 2013 and 3.5 percent in 2014.

The Fed is currently purchasing $85 billion in Treasurys and mortgage-backed securities each month to push down long-term interest rates and encourage hiring, and has promised to continue the program until there is substantial improvement in the jobs market.

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Also adding to pressure in the market, U.S. Defense Secretary Chuck Hagel said the U.S. sees a "real and clear" danger from North Korea. The U.S. is preparing to deploy an advanced missile defense system to Guam to defend American military bases in the Pacific.

"We are doing everything we can, working with the Chinese, others, to defuse that situation on the peninsula," said Hagel.

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"Coming into the year, there were some uncertainties, but I feel very confident that the S&P 500 is going to finish this year in the 1,575 to 1,625 area," said Scott Wren, senior equity strategist at Wells Fargo Advisors. "There's going to be a pullback this year, but this is very minor and any pullback is an opportunity. I'd love to see a 5 to 8 percent pullback but I don't think this is it."

Oil prices plunged nearly 3 percent to settle at $94.45 a barrel, logging its biggest one-day decline since November. Energy companies including Phillips 66, Tesoro and Marathon Petroleum were among the top laggards on the S&P 500.

On the economic front, the rate of growth in the services sector slowed in March to the lowest level since August. The Institute for Supply Management said its services index fell to 54.4 last month from 56 in February, falling short of economists' forecasts for 55.8. A reading above 50 indicates a sector expansion.

U.S. private employers added 158,000 jobs in March, falling short of economists' expectations for a gain of 200,000, according to payrolls processor ADP. February's private payrolls figure was revised up to an increase of 237,000 from the previously reported 198,000.

The ADP report comes ahead of the widely-followed government non-farm payrolls report, due Friday. Economists expect to see a gain of 200,000, with the unemployment rate steady at 7.7 percent, according to a Reuters poll.

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European markets were lower as Italy's political impasse continues and President Giorgio Napolitano's team of "wise men" attempted to formulate reform measures that can gain cross-party consensus.

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Vodafone slumped after Verizon Communications denied earlier reports that it is looking to partner with AT&T to acquire British cellphone company Vodafone. However, the Dow component said it would be a willing buyer of Vodafone's current 45-percent share of Verizon's wireless venture.

Zynga soared after the social gaming company said it would begin offering real-money poker and casino-style games in the UK in the next few days.

Among earnings, ConAgra declined after the packaged foods company reported a 57 percent drop in earnings, hurt by costs related to its acquisition of Ralcorp.

Meanwhile, Monsanto gained after the seed company boosted its full-year profit guidance after reporting better-than-expected quarterly results thanks to strength in its global corn business.

Earlier, the Mortgage Bankers Association reported that home loan applications dipped 4 percent last week due mainly to a decline in refinancing.

Meanwhile, the Nikkei 225 surged 3 percent on hopes that aggressive monetary stimulus measures will be announced at the Bank of Japan's policy meeting on Thursday. Central bank governor Haruhiko Kuroda is expected to substantially boost asset purchases,as well as buy longer-dated government bonds and commit to the open-ended purchase of assets.

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up this Week:

THURSDAY: BoE announcement, Challenger job-cut report, ECB announcement, jobless claims, Fed's Evans speaks, Bernanke speaks, natural gas inventories, Fed's George speaks, chain-store sales
FRIDAY: Gov't jobs report, international trade, consumer credit

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