Stocks continued to drop Wednesday amid investor concerns with a report suggesting the Federal Reserve's next round of quantitative easing will be less aggressive than expected.
The Dow Jones Industrial Average fell more than 115 points, led by Home Depot , Hewlett-Packard and Merck , after eking out a gain in the previous session.
Bank of America and AmEx were the top gainers on the blue-chip index.
The S&P 500 and the tech-heavy Nasdaq all fell. The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped to above 22.
Stocks had been rising in recent weeks because of some mostly upbeat earnings and mounting expectations that the Fed would embark on another round of bond-buying to stimulate the economy.
Traders have been anticipating the Fed would buy between $500 billion and $1 trillion in Treasurys to drive interest rates lower and encourage lending and spending. However, a report in The Wall Street Journal said the Fed's bond purchases might amount to a few hundred billion dollars over several months, which would fall short of those predictions.
The report came a day after William Dudley, the president of the Federal Reserve Bank of New York, said the central bank cannot fix the sluggish economy immediately.
Meanwhile, fund manager Jeremy Grantham, released an attack on the Fed policiesin a note to clients, calling the strategy of "manipulating asset prices through artificially low rates and asymmetric promises of help in tough times" dangerous and destabilizing to the economy.
The prospect of the Fed buying fewer bonds than the market had anticipated "is probably the biggest factor weighing on the markets today," said Michael Sheldon, chief market strategist at RDM Financial Group.
But Sheldon said news may simply be an excuse some investors to take profits, considering stocks have risen considerably over the past several weeks.
"The prospects of more quantitative easing, the upcoming election and positive third quarter earnings have provided the fuel to send the market higher in recent weeks," Sheldon said. "We’ve now had a significant rally; if one of those legs is removed, that could provide a short term excuse for the market to pull back somewhat."
Energy and materials fell for a second day as the dollar rose against a basket of currencies.
ConocoPhillips slipped almost 2 percent to lead a broad decline in energy stocks, despite posting third-quarter earnings that more than doubled, buoyed by higher commodities prices and improved refining margins. Rivals ExxonMobil and Chevron also fell.
Oil prices slipped below $81 a barrel, snapping a three-day rally, after the weekly government report showed a 5 million barrel gain in crude supplies in the week prior, more than expected by analysts.
Meanwhile, gold eased towards $1,330 an ounce.
Steel stocks extended losses across the board including U.S. Steel , Posco and AK Steel . In addition, gold miners such as Barrick and Kinross shed more than 3 percent each.
Also on the earnings front, Sprint-Nextel plunged almost 10 percent after the telecom firm said its loss widened, but customer numbers were better than expected.
Meanwhile, Procter & Gamble and Comcast advanced after the Dow component and cable giant both posted better-than-expected results. S&P raised its rating on Comcast to "hold" from "strong sell."
Deutsche Bank posted resilient profitfrom investment banking in the third quarter, bucking a weaker trend set by some rivals, as sales and trading of debt products rebounded in late September.
International Paper rose almost 5 percent after the firm posted a much higher-than-expected quarterly profit as demand rallied, the company further diversified its business and pricing increased.
STMicroelectronics shares climbed nearly 5 percent after the European chipamker forecast the market would pick up in the second quarter of next year, after posting higher-than-expected quarterly profit.
In addition, Broadcom rose almost 10 percent, extending its gains after the semiconductor firm reported Tuesday that strong sales of chips used in smartphones such as Apple's iPhone helped beat forecasts with a 44 percent rise in quarterly revenue.
Other semiconductor companies got a boost including Texas Instruments and Marvell .
Allstate , Symantec and Visa along with a handful of other companies are expected to report earnings after-the-bell Wednesday.
Also on the tech front, Apple said that it would delay release of its eagerly anticipated white iPhone again, this time until next spring.
Meanwhile, Barnes & Noble unveiled a color touch screen version of its Nook electronic reader as it seeks to catch up to the Kindle from Amazon.com .
In the day's economic news, sales of new U.S. single-family homes rosemore than expected at 6.6 percent in September after weakest summer in nearly five decades, according to the Commerce Department.
In addition, U.S. mortgage applications for home purchasing and refinancing posted a gain for last week. Consumers sought to take advantage of near-record low interest rates for fixed-term mortgages.
Meanwhile, September durable goods orders rose 3.3 percent, beating expectations. The previous month saw a decline of 1.3 percent.
The Treasury is scheduled to sell $35 billion in 5-year notes, with the results available shortly after 1 p.m. ET.
Coming Up This Week:
WEDNESDAY: 5-year note auction; after-the-bell earnings from Visa, Allstate, Symantec
THURSDAY: Jobless claims, natural gas inventories, 7-year note auction; before-the-bell earnings from ExxonMobil, Shell, AutoNation, Motorola, Potash, Blackstone; after-the-bell earnings from Microsoft and MetLife.
FRIDAY: GDP, employment cost index, Chicago PMI, consumer sentiment, farm prices; before-the-bell earnings from Chevron, Merck and Cigna.
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