A mixed report on the U.S. housing market conspired with unrest in Europe to pull U.S. stocks lower Wednesday. Other risky assets, like European stocks and oil, fell more sharply.
The median price of new homes sold in August rose by a record amount, while sales of new homes dipped slightly. Sales in August were up 27.7 percent from a year earlier, but remain at about half of the pace that economists consider healthy.
Stronger data on the U.S. housing market have helped insulate stocks in recent weeks from fears about the global economy. Stocks' other main source of support, the Federal Reserve's program to boost the economy by pumping money in, lost some luster Tuesday after a key Fed official expressed skepticism about the plan.
"There was some optimism coming into the market, and that's usually when you're most vulnerable to sell-offs when there are negative headlines" like the Fed official's comments, unrest in Europe and weaker data about the U.S. economy, said Todd Salamone, director of research at Schaeffer's Investment Research.
Indexes had risen to levels they hadn't beat for months or years, Salamone said, creating "an almost perfect storm in terms of the vulnerability to short-term impacts."
The dip in home sales hurt homebuilder stocks. PulteGroup Inc. fell 3.8 percent, KB Home 3.1 percent and Beazer Homes USA Inc. 3.6 percent.
European stocks had their worst day in months as unrest threatened to boil over in Greece, where deep budget cuts have eroded people's living standards; and Spain, where citizens are resisting a likely bailout from international lenders. Earlier, Asian stocks closed lower.
The euro fell sharply against the dollar, and the price of oil dropped below $90 per barrel for the first time since early August.
Rising demand for lower-risk investments fed strong bids for U.S. Treasury debt. The yield on the 10-year Treasury note fell to 1.64 percent from 1.67 percent late Tuesday. A bond's yield falls as its price increases.
The Dow Jones industrial average fell 11 points to 13,446 as of 1:20 p.m. EDT. The Standard & Poor's 500 index fell four to 1,437. Its only rising categories were telecommunications, utilities and consumer staples -- safer stocks that tend to hold their value when the economy is weak.
If the S&P 500 closes lower, it will be the index's first five-day losing streak since early July.
The Nasdaq composite average fell 21 points to 3,096.
The moves come a day after the worst sell-off for the S&P 500 in three months. Charles Plosser, president of the Fed's Philadelphia branch, told an audience Tuesday that the Fed's effort to support the economy would likely fall short of its goals.
Stocks had rallied this summer before and after the Fed announced the plan to buy $40 billion in mortgage bonds each month until the economy strengthens. As doubts about it sink in, stocks are falling back to where they were when the deal was announced.
In Europe, tens of thousands of protesters took to the streets in Athens and Madrid, where they clashed with riot police ahead of new rounds of spending cuts and tax hikes. The Bank of Spain warned that the country is in a deep recession, a day after protests in Madrid led to at dozens of arrests and injuries.
Spain's IBEX index fell the most, closing down 3.9 percent. Italy's FTSE MIB fell 3.3 percent, Germany's DAX 2 percent and France's CAC-40 2.8 percent.
The developments in Europe blunted any optimism about the U.S. housing market. Wednesday's report, while mixed, appeared to confirm that the market has hit bottom. Other recent data showed that sales of previously occupied homes jumped in August to the highest level since May 2010. Builder confidence is at a six-year high, and construction of single-family homes rose last month to the fastest annual rate in more than two years.
The fear is that a broader recession in Europe could stall in whatever economic recovery is occurring in the U.S., where the housing market has been a major drag for five years.
In corporate news, American Greetings Corp. shares jumped 17.6 percent after the greeting card company said that a group led by its CEO and chief operating officer wants to take it private in a deal that values it at about $581 million.
Automobile auctioneer Copart hit an all-time high and was up 1.8 percent after a strong fourth quarter that topped Wall Street expectations.
Daniel Wagner can be reached at www.twitter.com/wagnerreports .