Materials and energy companies led U.S. stocks lower Wednesday as commodity prices fell sharply.
Crude oil lost nearly $2 to $105 a barrel, punishing energy stocks. Peabody Energy Corp. fell 3.5 percent; Exxon and Chevron each lost 1 percent.
Industrials fell the most among the 10 industry groups in the Standard & Poor's 500 index. Heavy equipment maker Caterpillar Inc. fell 3.6 percent, the most in the Dow Jones industrial average. Aluminum producer Alcoa Inc. fell 2.6 percent.
The Dow fell 77 points to 13,121 as of 3:50 p.m. Eastern. The S&P 500 lost 8 to 1,404. The Nasdaq composite index, heavy with technology stocks, dropped 16 to 3,104.
One bright spot in the market was the strong debut of Annie's Inc., a company that sells prepared organic foods. In its first day of trading on the New York Stock Exchange, Annie's leapt 88 percent to $32.55. The company, based in Berkeley, Calif., had priced its shares at $19 late Tuesday.
The broad declines came in spite of a government report that U.S. factory orders rose strongly last month, a sign that businesses continue to invest.
The Commerce Department said before the market opened that orders for durable goods, which are defined as products expected to last at least three years, rose 2.2 percent in February. Orders for machinery, computers, autos and aircraft led the rise.
The positive economic news reduced demand for U.S. Treasury debt. The yield on the 10-year Treasury rose to 2.21 percent from 2.19 percent before the report. As stocks fell, traders again sought the safety of Treasurys and the yield fell back to 2.19 percent.
Health insurance companies declined more than the broader market as the U.S. Supreme Court wrapped up oral arguments over President Barack Obama's massive health care overhaul. Aetna Inc. and Health Net Inc. lost 1.1 percent; Catalyst Health Solutions fell 1.8 percent.
Observers interpreted tough questions from key justices as a signal that the court might strike down the law, said Dave Shove, an analyst with BMO Capital Markets. He said most people expect the law to help big health insurers by extending coverage to millions more Americans,
"Stocks are following what most people think, which is that these exchanges were going to be a fairly good thing for insurers and bring a bunch of the uninsured in," Shove said, referring to the health policy exchanges where uninsured people would be able to buy coverage.
Shove said his firm has a contrarian view, namely that the law "is much less disruptive to the marketplace" than many people expect.
Many investors are holding back on major trades because they expect news later this week on Europe's progress in resolving its debt crisis, said Andrew Goldberg, global market strategist with J.P. Morgan Funds.
"Investors know Europe is still in crisis" and fear a steeper drop if markets are spooked by a meeting of European finance ministers that begins Thursday and Spain's budget announcement on Friday, Goldberg said.
European markets closed sharply lower. London's FTSE 100 dropped 1 percent; benchmark indexes in France and Germany dropped 1.1 percent.
The encouraging report on orders for durable goods came a day after an index of consumer confidence suggested Americans' spirits are relatively resilient despite skyrocketing gasoline costs. Consumer confidence edged lower this month but remained near February's 12-month high.
Goldberg said consumer sentiment is a very strong predictor of short-term demand for stocks and Treasurys.
"There's a tight correlation between how people feel and what they're willing to pay to own a stock," he said. "If you feel crummy, you want to hunker down in the perceived safe haven of bonds."
Futures for crude, natural gas, heating oil and gasoline all fell Wednesday, with gasoline leading the way.
Oil prices fell below $105 a barrel Wednesday after a report suggesting a larger-than-expected jump in U.S. crude supplies, a sign that demand remains weak.
The American Petroleum Institute said late Tuesday that crude inventories rose 3.6 million barrels last week. That is a bigger jump than was predicted by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos. Analysts in that survey expected an increase of 2.8 million barrels.
If consumers get a break on what they have to pay for energy, that could provide a bump for the U.S. economy.
In corporate news:
-- Sealy Corp. rose 6 percent after the mattress maker reported a surprise profit in the first quarter of 1 cent per share. Analysts surveyed by FactSet had expected a loss of 2 cents per share.
-- Medco Health Solutions Inc. jumped 4 percent after the company said its $29.1 billion merger with Express Scripts Inc. could close as early as next week. Express Scripts rose 2 percent.
-- JoS A. Bank Clothiers Inc. plunged 8 percent after the company said its first quarter began weakly because the mild winter weather crimped demand.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.