The prospect of a GM bankruptcy also made it more likely that the company would be plucked from among the 30 stocks that make up the Dow industrials. The price of a stock factors into its weighting in the Dow so GM's low share price means it hasn't been dragging as much on the blue chips lately. But its tumble has hurt the index as GM shares fell from as high as $18.18 last June.
Many investors have been expecting GM to enter Chapter 11 for some time, but the reality of it happening could still deal Wall Street a psychological blow. Any remaining value in the shares, which are currently trading just above $1, would be wiped out.
Some analysts say the market should be able to withstand an eventual GM bankruptcy filing. Mark Coffelt, portfolio manager at Empiric Funds, thinks Wall Street's recovery since hitting 12-year lows in early March leaves stocks better suited to shrug off GM's troubles.
"The market has come a long way in a short period. I would expect it to settle out a little bit," he said, predicting more back-and-forth days rather than more big gains in a short period.
Investors on Wednesday also worried about housing and financial stocks.
The National Association of Realtors said sales of previously occupied homes rose from March to April as buyers hunted for bargains. But the 2.9% increase in sales came as the number of unsold homes on the market at the end of April rose almost 9% to nearly 4 million. That's a 10-month supply at the current sales pace.
Some analysts worry that rising prices could prompt homeowners who had been on the sidelines to put their homes on the market. The increase in available homes could short-circuit a recovery in prices and trip up the economy's recovery by hurting consumers and banks that hold mortgages.
Financial stocks fell after the Federal Deposit Insurance Corp. said the number of troubled banks jumped to the highest level in 15 years.
Agricultural products maker Monsanto fell $5.37, or 6.3%, to $79.88 after saying it expects to meet the low end of its fiscal 2009 earnings forecast.
Flash-memory maker SanDisk renewed a licensing agreement with South Korea's Samsung Electronics. SanDisk jumped $1.94, or 14.3%, to $15.52.
In other trading, the Russell 2000 index of smaller companies fell 10.45, or 2.1%, to 489.86.
About two stocks fell for every one that rose on the New YorkStock Exchange, where volume came to a light 1.3 billion shares compared with 1.4 billion shares Tuesday.
The dollar was mixed against other major currencies. Gold prices fell.
Light, sweet crude rose $1 to settle at $63.45 per barrel on the New York Mercantile Exchange.
Overseas, Britain's FTSE 100 rose 0.1%, Germany's DAX index rose 0.3%, and France's CAC-40 added 0.8%. Japan's Nikkei stock average rebounded 1.4%.