Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.79 percent from 3.84 percent late Tuesday.

The dollar rose against other major currencies. Gold prices also rose.

Alan Haft, chief executive of Haft Financial in Newport Beach, Calif., contends that worries about the financial sector aren't likely to ease and that it will remain difficult to determine the severity of losses that financial companies are suffering from bad mortgage debt.

"I think there is still a lot of fear in the market in terms of the financial sector," he said.

Fannie Mae and Freddie Mac collectively back or hold nearly half of all mortgage debt in the U.S. Investors are worried that losses at the companies and other financial names will deepen as homeowners fall behind on mortgage payments and other bills.

Wall Street is also fearful that the sharp rise in energy and food costs seen this year are only placing more pressure on already cash-strapped consumers.

Fannie Mae fell $1.61, or nearly 27 percent, to $4.40, while Freddie Mac fell 92 cents, or 22 percent, to $3.25.

Results from Hewlett Packard Co. offered investors some hope that areas like technology could fare better than financials. Hewlett Packard rose $2.47, or 5.7 percent, to $46.16 after posting better-than-expected quarterly results late Tuesday. It was the biggest gainer among the 30 stocks that make up the Dow Jones industrial average.

Advancing issues outnumbered decliners by about 8 to 7 on the New York Stock Exchange, where volume came to 1.07 billion shares.

The Russell 2000 index of smaller companies rose 1.57, or 0.22 percent, to 731.60.

Overseas, Japan's Nikkei stock average slipped 0.10 percent. Britain's FTSE 100 rose 0.97 percent, Germany's DAX index advanced 0.56 percent, and France's CAC-40 rose 0.76 percent.