The stock market posted its biggest drop in a month on concerns that tighter lending in China could endanger an economic recovery. Disappointing earnings from IBM and Morgan Stanley added to investors' angst.
At the same time, sudden strength in the dollar pushed commodity prices sharply lower Wednesday, hurting stocks of energy companies and materials producers.
The Dow Jones industrial average fell 122 points from a 15-month high but ended well off its lows for the day. Demand for havens like government debt rose, pushing yields lower.
Stocks have posted sharp swings since last week as investors try to detect the overall direction of the market. The Dow fell 101 points Friday and gain 116 Tuesday.
The latest slide came as concern grew that China's efforts to cool its rapid growth could hurt a global recovery. A top banking regulator said Wednesday that China will increase monitoring of banks as it tries to prevent speculative bubbles in areas such as real estate. Last week, China took steps to limit runaway lending.
Investors are also questioning whether a 68.2% gain in the benchmark Standard & Poor's 500 index in the last 10 months has been too much. Those doubts are intensifying this week as more companies report results from last year's final three months. The early read is that cost-cutting has again helped boost profits, but revenues remain disappointingly weak.
IBM led the Dow lower. The company reported late Tuesday that its earnings rose 9% from a year earlier, while sales rose less than 1%. Its forecast was seen as cautious.
"We might see profitability out of companies this season but we're not really seeing revenue growth," said Dan Cook, senior market analyst at IG Markets in Chicago.
Banks posted mixed results. Bank of America reported better results and said credit conditions were improving, but also said the economic environment is "fragile."
The Dow fell 122.28, or 1.1%, to 10,603.15. The Dow had been down as much as 208 points.
The broader S&P 500 index fell 12.19, or 1.1%, to 1,138.04, and the Nasdaq composite index fell 29.15, or 1.3%, to 2,291.25.
Bond prices rose, driving their yields lower. The yield on the benchmark 10-year Treasury note fell to 3.65% from 3.70% late Tuesday.
The dollar rose, reaching a five-month high against the euro as concern grew about heavy debt loads in Greece.
Gold fell. The gain in the dollar pushed commodity prices lower because a stronger greenback makes them more expensive for foreign buyers. Crude oil fell $1.40 to $77.62 a barrel on the New York Mercantile Exchange.
IBM fell $3.89, or 2.9%, to $130.25 after its report.
Bank of America said it lost $5.2 billion in the fourth quarter, mostly from costs related to repaying $45 billion in government bailout money. The stock rose 17 cents to $16.49.
Despite improving bottom lines at Bank of America and Wells Fargo & Co., many investors remain pessimistic about bank shares. JPMorgan Chase & Co. and Citigroup have both said in recent days that they remain cautious about the economy and aren't sure when loan losses will start to shrink.
Wells Fargo fell 46 cents to $27.82. Morgan Stanley fell 53 cents to $30.63.
Overseas, Britain's FTSE 100 fell 1.7%, Germany's DAX index dropped 2.1% and France's CAC-40 fell 2%. China's main Shanghai composite index dropped 2.9%, while Japan's Nikkei stock average fell 0.3%.
Bernard and Paradis write for the Associated Press.