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 closed below $90 per barrel for the first time since early August.
Rising demand for lower-risk investments fed strong bids for Treasury debt. The yield on the 10-year Treasury note fell to 1.62 percent from 1.67 percent late Tuesday. A bond's yield falls as its price increases.
The Dow Jones industrial average fell 44.04 points, or 0.3 percent, to 13,413.51. The S&P 500 index fell 8.27, or 0.6 percent, to 1,433.32. The only category that rose was utilities, relatively safe stocks that tend to hold their value when the economy is weak.
The Nasdaq composite average fell 24.03 points, or 0.8 percent, to 3,093.70.
The declines came 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.
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 whatever economic recovery is occurring in the United States, where the housing market has been a major drag for five years.
In corporate news, Automobile auctioneer Copart hit an all-time high and closed up 43 cents, or 1.6 percent, at $27.82 after a strong fourth quarter that topped Wall Street expectations.
