Investors were also focused on events in the Middle East after Bahraini police cleared rotestersfrom a central roundabout that had become the symbol of an uprising by the island's Shi'ite Muslim majority.
London Brent crude rose above $110 a barrel, while U.S. light sweet crude rose above $98 a barrel. Also, the government reported Tuesday that crude oil inventories in the U.S. rose to 1.75 million barrels, while gasoline inventories fell by 4.2 million barrels.
The dollar reversed course and gained slightly against a basket of currencies, although it hit a 16-year low against the Japanese yen. Gold, meanwhile, gained slightly, closing at $1,396 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 the 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 lead 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.
Other big tech names dropped as well out of concern they could suffer from component shortages as a result of the crisis in Japan. Google , Microsoft and Oracle all sank.
Toyota Motors slipped on Wednesday after news it would restart production of spare parts at seven plants in central Japan, but would keep its 12 main assembly plants shuttered until March 22.
Meanwhile, GM shares also declined despite an upgrade by S&P Equity to "strong buy" from "hold," saying the once-bankrupt automaker will benefit from rising global industry sales in 2011.
Among insurers, Aflac fell despite 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.
Among energy stocks, some fossil fuel producers gained as investors expect they will benefit from fears over the safety of nuclear power plants in the wake of the nuclear disaster in Japan, although the sector was broadly lower. Some of the gainers included Peabody Energy, Range Resources, Consol Energy and Southwestern Energy.
Volume on the consolidated tape of the New York Stock Exchange was 5.6 billion shares, while 1.5 billion changed hands on the NYSE floor.
Treasurys rallied more than a point, sending the yield on the benchmark 10-year Treasury note to 3.2 percent.
Investors also put money into exchange-traded funds that offer portfolio protection. ProShares UltraShort S&P 500 and the iPath S&P VIX Short-Term Futuresboth gained.
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.
In Europe, Moody's Investors Servicedowngraded Portugal's debt rating by two notches to A3, citing high borrowing costs.
The move, as well as the crisis in the Japan and events in the Middle East, sent European stocks lowerfor a sixth straight session.
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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