The spike in the 10-year Treasury note's yield to 4.61 percent weighed on interest-rate-sensitive sectors, including housing stocks and the shares of utilities, which typically pay above-average dividends to investors.
The Standard & Poor's utilities index slipped 1.3 percent, while The Dow Jones index of home builders' shares fell 2.1 percent.
Shares of Boeing, a Dow component, slid 2.8 percent to $65.10 on the New York Stock Exchange and were the biggest drag on the Dow average. The world's No 2 commercial jetmaker reported a higher profit, but its earnings per share excluding one-time items missed analysts' forecasts.
"Bond yields are trading at their highest in seven months, and that's brought back some inflationary concerns," said Larry Peruzzi, senior equity trader at The Boston Co Asset Management, a Mellon subsidiary.
The Dow Jones industrial average was down 32.89 points, or 0.32 percent, to end at 10,344.98. The Standard & Poor's 500 Index was down 5.16 points, or 0.43 percent, to finish at 1,191.38. The technology-laced Nasdaq Composite Index was down 9.40 points, or 0.45 percent, to close at 2,100.05.
Amazon.com's stock fell 13.9 percent, or $6.42, to $39.75 after the online retailer reported on Tuesday that quarterly profit soared, but earnings per share were below Wall Street estimates.
Flextronics International Ltd shares sank nearly 24 percent, or $2.90, to $9.20 and also dragged on the Nasdaq, a day after the world's biggest contract electronics manufacturer posted a small net loss. Flextronics also set financial targets below analysts' expectations.
US mortgage applications fell last week to a six-month low as interest rates on home loans stayed close to their highest level this year, the Mortgage Bankers Association, an industry trade group, said on Wednesday.
Shares of Countrywide Financial Corp, the largest US mortgage lender, fell 4.1 percent, or $1.31, to $30.30, while shares of KB Homes, one of the biggest US home builders, slipped 1.4 percent, or 90 cents, to $64.53, both in NYSE trading.
On Tuesday, existing US home sales for September were essentially flat, the National Association of Realtors said. On Thursday, the Commerce Department will release September data on new US home sales.
Meanwhile, shares of WellPoint Inc, the largest US health insurer by membership, fell 5.7 percent, or $4.37, to $71.72 on the NYSE after it posted higher profits, but offered a vague forecast for 2006. Wellpoint was among the major drags on the S&P 500.
Trading was heavy, with 1.83 billion shares changing hands on the NYSE, above the 1.46 billion daily average for last year. About 1.88 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year.
The number of stocks declining outpaced those advancing by about 2 to 1 on the NYSE. On Nasdaq, decliners led advancers by about 3 to 2.