(Reuters) - Stocks fell for a third day and hit their lowest level in two weeks on Wednesday as widespread risk aversion sank commodity prices, drove the euro to its lowest in a year, and pushed Italian bond yields to a record high.
Investors are disappointed the European Central Bank is not buying more bonds of troubled European countries, a move that was widely seen in markets as a requisite next step following last week's EU summit on strengthening fiscal unity in the bloc.
With the crises festering as Europe slides into recession, the outlook for the world economy is growing bleaker.
A 5 percent slump in oil prices hit energy stocks, with S&P's energy index .GSPE down nearly 3 percent. Chevron Corp .CVX fell 3.6 percent to $99.90.
"There is a growing realization that the global economy is in jeopardy," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. "Business is cooling everywhere. Right now, the U.S. appears to be operating in a vacuum, but that's not sustainable."
The S&P 500 .SPX fell below its 50-day moving average, signaling a breakdown of its recent trading range between that level and 200-day moving average at the top end. The move has some analysts expecting further weakness.
The Dow Jones industrial average .DJI dropped 153.22 points, or 1.28 percent, to 11,801.72. The Standard & Poor's 500 Index .SPX fell 14.62 points, or 1.19 percent, to 1,211.11. The Nasdaq Composite Index .IXIClost 45.11 points, or 1.75 percent, to 2,534.16.
Copper fell near a three-week low, Aluminum hit its lowest in 17 months and tin made a three-month low. The S&P's materials sectors index .GSPM fell nearly 1 percent. Shares of miner Cliffs Natural Resources (CLF.N) dropped 1.7 percent to $63.13.
Italy's borrowing costs rose to a record after an auction of five-year debt, while the euro fell to an 11-month low against the dollar.
U.S. stocks have been weighed down this week in part on fears that the agreement at last week's European Union summit did not go far enough to resolve the two-year-old debt crisis.
"The main issue right now is the complete, absolute failure of the European Union to come to any kind of solution. They're back to where they started from," said Jeffrey Sica, president and chief investment officer of SICA Wealth Management in Morristown, New Jersey.
"Borrowing costs are going to rise, and that's going to continue to put pressure on us. The summits they've had have taken us nowhere, and soon we're going to pay the price."
Gold dropped to its lowest level since early October as the weak euro and a shortage of dollar funding near the year-end prompted investors to sell aggressively. Commodity-related shares were further pressured by a strengthening U.S. dollar.
The Arca Gold Bugs index .HUI, which measures the performance of 16 of the world's largest gold producers, fell 3.7 percent. Shares of Yamana Gold (AUY.N), the Canadian producer, was one of the biggest losers, falling 6.3 percent to $13.92.
Investors were also disappointed the U.S. Federal Reserve made no mention of possible new stimulus measures after its Tuesday meeting.
Though a majority of economists polled by Reuters expected no more Fed action to boost the economy in the short term, another survey showed most primary dealers saw the central bank enacting some type of stimulus.
Technology shares sold off sharply. A number of companies in the industry and beyond have cutearnings outlooks over recent days, another sign of the fallout from a slowing economy. The latest was First Solar Inc (FSLR.O), which tumbled 20.2 percent to $33.96 after it cut its 2011 sales and profit forecast.
The maker of solar power systems joins a list of companies, including Intel Corp (INTC.O), DuPont and Co (DD.N) and Texas Instruments Inc (TXN.N), which have cut their outlooks in recent days.
An index of home builder stocks .DJUSHB dropped 2.5 percent after the National Association of Realtors said data on sales of previously owned homes will be revised downward because of double counting.
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