U.S. stocks fell more than 1 percent on Wednesday after a hefty year-end rally and the S&P 500 erased gains for the year on renewed concerns about the euro zone's financial health.
The selloff followed the euro's slide to an 11-month low against the U.S. dollar as regional debt worries prompted a wave of selling, with thin trading exacerbating volatility.
"It seems like the weakness in euro, breaking that $1.30 level, really made investors push that 'sell' button," said Ryan Detrick, senior technical strategist with Schaeffer's Investment Research in Cincinnati.
"But it's somewhat of an exaggerated move, considering that there isn't much volume, and this could end in a one-day selloff."
A recent rally on Wall Street had been supported by a series of positive U.S. economic data that encouraged investors to shift their focus from fears about Europe's debt crisis sparking a global recession to optimism that the U.S. economy was on track to recovery.
But "with no domestic economic news to guide the action, much of the focus was on Europe," WhatsTrading.com options strategist Frederic Ruffy said.
U.S. stock index futures had advanced earlier in the session after an Italian debt auction where short-term borrowing costs were halved, potentially a good sign for a sale of longer-dated bonds on Thursday.
But those gains were short-lived, as the euro fell to a session low of $1.2938, its lowest since January, before rising back to trade at $1.2949.
The Dow Jones industrial average .DJI fell 139.94 points, or 1.14 percent, to end at 12,151.41. The Standard & Poor's 500 Index .SPX dropped 15.79 points, or 1.25 percent, to 1,249.64. The Nasdaq Composite Index .IXIC lost 35.22 points, or 1.34 percent, to 2,589.98.
S&P UP 10.5 PCT IN QUARTER
After a 5 percent rally last week that helped Wall Street add to what has been the best quarter in over a year, the S&P 500 pulled back below its 200-day moving average, a closely watched indicator of market strength it has struggled to hold this year.
For the quarter, the S&P 500 is up 10.5 percent.
For the year, the Dow is up 5 percent, while the S&P 500 is down 0.6 percent, and the Nasdaq is off 2.4 percent.
In Wednesday's session, investors concentrated on 2012 with Europe's debt crisis as well as a slowdown in Asia and the impact of Europe's recession on a U.S. recovery on the agenda.
"There are clearly some major hurdles on the horizon," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey. "Looking into next year, there is more apprehension about the risks associated with the current climate."
The biggest gaining sectors over the last five days, in cyclical areas like materials and energy, led the market lower on Wednesday, sparked by a drop in commodity prices. The S&P materials sector index .GSPM fell 2.2 percent.
Gold sank, tracking industrial metals, on concerns about the prospects for global economic growth next year. It was gold's biggest one-day drop in two weeks.
Medicis Pharmaceutical Corp (MRX.N) fell 1.2 percent to $33.35 a day after cutting its fourth-quarter earnings outlook.
Citigroup Inc (C.N) shed 2.9 percent to $26.13 after U.S. regulators won a delay in a securities fraud lawsuit against the bank. The U.S. Securities and Exchange Commission is seeking to appeal a judge's decision to reject its $285 million settlement with the bank.
Volume was light in the post-Christmas period and ahead of the New Year's Day holiday. Composite volume on the New York Stock Exchange, the Nasdaq and Amex was 4.31 billion shares, well below the year's daily average of around 7.9 billion shares.
On both the NYSE and the Nasdaq, about four stocks fell for every one that rose.