The stock market has a new priority: interest rates.
Stocks fell moderately Wednesday after the government sold $19 billion in 10-year Treasury notes in a relatively weak auction. There were plenty of bidders, but the government had to lure them in with a higher yield than the market had anticipated.
The yield on the benchmark 10-year Treasury note rose for the fourth time in five days, jumping to 3.95% from 3.86% late Tuesday. That helped send stocks broadly lower, with the Dow Jones industrial average losing 24 points.
Investors are concerned the government's debt load is growing so large that it will lead to higher inflation and soaring interest rates. Higher interest rates could hamper the economy's recovery by raising borrowing costs for consumers, while inflation could also discourage them from spending.
Stocks have fallen several times in the past two months on worries over interest rates. Yields on long-term Treasury bonds jumped on May 21, sending the stock market sharply lower, after Standard & Poor's warned it might downgrade the British government's AAA debt rating. That touched off fears that the U.S. government's own debt rating might be in downgraded at some point, as some analysts say.
A weakening dollar has also contributed to the concerns about interest rates, since it can lead to higher prices for imported goods, putting pressure on the Federal Reserve to hold inflation in check by raising short-term interest rates.
The dollar's slump has also stirred inflationary worries by driving up prices for key commodities such as oil, which can trigger higher prices everywhere. The price of crude rose above $71 a barrel on Wednesday, its highest level this year.
Jeffrey Frankel, president of Stuart Frankel & Co., said the Treasury auction rattled some traders. But he added that several cautious pullbacks in a stock market that went nearly straight up for three consecutive months are not necessarily a bad thing.
"You have some people reading the history books, thinking, 'This looks familiar to what the books tell us happened during the Great Depression,' " he said. "Then you have others that saying, 'Don't sell America short.'"
The Dow fell 24.04, or 0.3%, to 8,739.02 after sliding as much as 123 points after the release of the Treasury auction results in the early afternoon.
The S&P 500 index fell 3.28, or 0.4%, to 939.15. The Nasdaq composite index fell 7.05, or 0.4%, to 1,853.08.
Data from the Federal Reserve on regional economies did little to help stocks. The central bank reported in what's known as its "Beige Book" that five of 12 U.S. regions said the economy's "downward trend is showing signs of moderating."
The Dow has been waffling around 8,700 this month, just below where it started the year, after its massive three-month rebound from 12-year lows reached in early March.
"We're going to need to have more positive news on the economic front to make another push higher," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
Bonds weakened as Brazil joined China and Russia in saying it was interested in buying the International Monetary Fund bonds as a way to broaden its holdings beyond the dollar. Brazil's finance minister said it was considering buying $10 billion in IMF bonds. That could mean fewer countries show up at Treasury auctions.
Stephen Wood, chief market strategist for North America at Russell Investments, said inflation is just one of the unknowns as traders try to determine how quickly the economy might recover.
"The market was priced for perfection a year and half ago and you had a market that was priced for Armageddon last September and now you have something priced in between."
In other trading, the Russell 2000 index of smaller companies fell 4.22, or 0.8%, to 523.71.
About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion Tuesday.
Overseas, Japan's Nikkei stock average rose 2.1%. Britain's FTSE 100 gained 0.7%, Germany's DAX index rose 1.1%, and France's CAC-40 rose 0.6%.