Stocks trimmed losses after investors learned a European energy chief didn't have material information about the situation in Japan before saying the crisis was "out of control."
The Dow Jones Industrial Average fell more than 180 points after the EU minister's remarks, although the blue-chip index has since pared some of those losses. The Dow had a tumultuous day of trading on Tuesday that ended with index closing at 11,866.
IBM, General Electric and Microsoft led the blue-chip index lower, while Caterpillar gained.
The S&P 500 and the Nasdaq also declined. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose more than 6 percent, to nearly 26.
Among key S&P 500 sectors, technology, health care and consumer staples fell.
The European Union's energy leaderwarned of a further catastrophe at Japan's nuclear site in the coming hours but a spokeswoman for the energy minster said he had no specific or privileged information on the situation, according to Reuters.
Japan continued to battle the nuclear disaster, with the chances of success still unclear, and as foreign bankers fled Tokyo. (Click here for more news on the disaster in Japan).
Investors will keep one eye on developments in Japan Wednesday, as well as in the Middle east after Bahraini police cleared protestersfrom a central roundabout that had become the symbol of an uprising by the island's Shi'ite Muslim majority. (Click here for more on the crisis in the Middle East and North Africa.)
London Brent crude rose above $110 a barrel, while U.S. light sweet crude rose above $98 a barrel. Crude oil inventories in the U.S. rose to 1.75 million barrels, while gasoline inventories fell by 4.2 million barrels, the government reported Wednesday morning.
Moody's Investors Servicedowngraded Portugal's debt rating by two notches to A3, citing high borrowing costs.
The dollar reversed course and gained slightly against a basket of currencies. Gold, meanwhile, rose, rising above $1,400 an ounce.
The market was also concerned on Wednesday with news closer to home, as tech giants IBM and Apple both suffered downgrades. IBM's declines followed Bernstein's downgrade of the stock to "market perform" from "outperform," although the brokerage raised its price target on thte stock to $173 a share from $170. Bernstein said expectations for gains in IBM's earnings per share are already reflected in the stock.
Apple, meanwhile, fell after JMP Securities downgraded the iPad maker to "market perform" from "market outperform," based on "deceleration" in sales among a a key Apple manufacturing partner, Hon Hai, that has only gotten worse since the disaster in Japan.
The downgrades "just leads you to believe the market will have a tough time rallying," said Rick Fier, an equity trader at Conifer Securities.
While the focus has been on Japan, market participants are more concerned with the events in the Middle East and its affect on oil prices, Fier said.
These events, however, are excuses for a market that had risen steadily for several months to finally pause, he added, saying he wouldn't be surprised for stocks to remain within a trading range for four or five months. As a result, investors will make money more by trading individual stocks, than as a result of the market just going up day after day.
"You need to trade now more than ever," he said.
Toyota Motors shares gained slightly on Wednesday after news it would restart production of spare parts at seven plants in central Japan, but would keep its 12 main assembliy plants shuttered until March 22.
Among insurers, Aflac gained after an upgrade by Deutsche Bank to "buy" from "hold", saying the stock was beaten up more than warranted since Japan's earthquake and tsunami. Aflac's shares have plunged 9 percent because of the company's significant exposure to Japan. But Deutsche Bank said Aflac's losses due to the tragedy "would be less than two quarter’s worth of capital generation." The brokerage has a $60 price target on the stock.
Companies such as Caterpillar, which could benefit from rebuilding efforts in Japan, gained on Wednesday. Others seeing a boost included Cummins and Deere .
Among energy stocks, the big winners were fossil fuel producers as investors expect they will benefit from fears over the safety of nuclear power plants in the wake of the nuclear disaster in Japan. Peabody Energy, Range Resources, Consol Energy and Southwestern Energy.
In U.S. economic news, Producer Price Index rose a seasonally adjusted 1.6 percent in February, up from 0.8 percent the month before, the Labor Department reported. The core PPI, excluding food and energy costs, rose 0.2 percent from a 0.5 percent gain the month before.
Meanwhile, the housing sector was hit with bad newsas starts fell 22.5 percent to an annual rate of 479,000 units, the biggest drop in 27 years, the Commerce Department reported. Building permits sank to 517,000 units from a revised 563,000, a 20 percent drop from February 2010.
Also, the Mortgage Bankers Association'sseasonally adjusted index of mortgage application activity fell 0.7 percent as home purchases slowed for the week ended March 11.
The House Energy and Commerce Subcommittees on energy and power, and the environment and the economy hold a joint hearing on the Energy Department and Nuclear Regulatory Commission budgets at 9:30 am.
The hearing is expected to include discussion of 20 proposed nuclear plants as well as nuclear safety.
Treasury Secretary Timothy Geithner testifies about President Obama’s budget plan at 2 p.m.
On Tap Next Week:
THURSDAY: Consumer price index, jobless claims, industrial production, leading indicators, Philadelphia Fed survey, natural gas inventories, money supply; before-the-bell earnings from FedEx and Lululemon; after-the-bell earnings from Nike.
FRIDAY: Quadruple witching; before-the-bell earnings from Allianz.
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