Stocks ended sharply lower Wednesday, following a Fed report that said pace of economic growth moderated in many districts and amid growing uncertainty over the ongoing debt talks in Washington.
The Dow Jones Industrial Average dropped 198.75 points, or 1.59 percent, to end at 12,302.55, led by Cisco and Caterpillar .
The S&P 500 shed 27.05 points, or 2.03 percent, to finish at 1,304.89, falling below its 50-day moving average of 1,310.
The tech-heavy Nasdaq plunged 75.17 points, or 2.65 percent, to finish at 2,764.79, its biggest one-day drop since mid-February.
All three major averages are poised to close lower for July and the Dow and S&P are on track for their worst weekly decline in almost a year.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped near 23.
All key S&P sectors ended lower, led by industrials and techs.
Volume was better than usual with the consolidated tape of the NYSE at 4.42 billion shares, while 1.1 billion shares changed hands on the floor.
With less than a week to go until the Aug. 2 deadline, the debt debate continuedas the Congressional Budget Office said budget plans by Senate Democrats and House Republicans wouldn't reduce the deficit by as much as promised.
Meanwhile, the Treasury rejected claimsfrom a recent Barclays report that said the debt deadline may not be Aug. 2 but around Aug. 10 instead.
"We don't think we're at a major inflection point either way," according to Andrew Burkly, market strategist at Brown Brothers.
Burkly said the next level he's watching on the S&P is 1,250, but also warned that the index could dip as low as near 1,230.
"We're in the camp of that there's going to be that hopeful last minute resolution and we're also in the camp of whatever happens, the ratings agencies are going to frown on the outcome," he added.
Meanwhile, economic growth slowed in much of the U.S. in June and early July, according to the Federal Reserve, suggesting a tepid recovery is not gaining momentum as economists had anticipated.
The Fed's Beige Book summary of economic conditions across the country said eight of the nation's 12 Fed districts reported moderating growth.
Dunkin Brands skyrocketed more than 45 percent on its first day of trading. The parent company of Dunkin' Donuts sold $422.75 million worth of shares at $19 apiece in the biggest IPO deal of the week. Meanwhile, premium tea retailer Teavana is scheduled to price its IPO after the close.
Industrials lagged as Dow components United Tech , GE and Caterpillar all declined.
On the earnings front, Boeing gained after the world's largest aerospace and defense company said earnings jumped 20 percent.
ConocoPhillips turned lower even after the oil giant said profit topped expectations. Dow Chemical also slipped even after the chemical maker posted a better-than-expected profit.
And Aetna posted a profit above estimates and raised its full-year forecast. Meanwhile, rival WellPoint beat earnings estimates, but warned that costs for its Medicare plans for seniors were higher than expected this year.
Amazon.com climbed to hit an all-time high after the online retailer reported better-than-expected earnings Tuesday afternoon. At least four brokerages raised their price targets on the firm.
Meanwhile, Juniper Networks plunged more than 20 percent after the tech firm warned that its results would miss expectations. The firm also forecast weak results in the current quarter and said it expects reductions in spending in the near-term, and at least eight brokerages reduced their price targets on the company.
Nokia slipped after Moody's downgraded its rating on the Finnish cell phone company by two notches. Rival Research In Motion also tumbled.
Chipmakers also suffered with companies such as Texas Instruments , Taiwan Semi and Micron Tech all trading lower.
Gold pulled back after rising to a new high above $1,625 an ounce, marking the sixth time it's reached record levels in two weeks. Oil prices slippedto session lows after a government report showed that crude inventories unexpectedly jumped for the first time in nine weeks. U.S. light, sweet crude settled below $98 a barrel, while London Brent crude slipped under $118.
Treasury prices extended lossesafter the government auctioned $35 billion in five-year notes at a high yield of 1.580 percent and a bid-to-cover of 2.62. The government is expected to auction $29 billion in seven-year notes Thursday.
Also on the economic front, new orders for durable goods dropped 2.1 percent in June, reversing the previous month's downwardly revised 1.9 percent increase, according to the Commerce Department.
And weekly mortgage applications declined last weekfollowing a sharp jumped in the prior week as interest rates edged higher, according to the Mortgage Bankers Association.
On Tap This Week:
THURSDAY: Weekly jobless claims, pending home sales, Kansas City Fed survey, Richmond Fed Lacker speaks, 7-yr note auction, San Francisco Fed Williams speaks, money supply; Earnings from AstraZeneca, Credit Suisse, DuPont, ExxonMobil, Royal Dutch Shell, Sanofi, Bristol-Myers Squibb, DR Horton, Kellogg, Motorola Solutions, Sprint, Time Warner Cable, Chesapeake Energy, MetLife, Motorola Mobility, Starbucks
FRIDAY: Employment cost index, GDP, Chicago PMI, consumer sentiment, farm prices; Earnings from Chevron, Merck
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