Bears come roaring back

NEW YORK (CNNMoney.com) -- A late selloff sent the Dow tumbling 146 points Wednesday as rising Treasury bond yields outweighed a big drop in oil prices.

The 30-share Dow (down 146.00 to 13,489.42, Charts) and the tech-laden Nasdaq (down 26.80 to 2,599.96, Charts) sank over 1 percent each. The broader S&P 500 (down 20.86 to 1,512.84, Charts) index skidded 1.4 percent.

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Investors, who have been on edge over rising Treasury yields recently, were spooked again about higher rates Wednesday as the yield on the benchmark 10-year note rose to 5.13 percent from 5.08 percent Tuesday. Bond prices and yields move in opposite directions.

"It provided a good excuse for profit taking, which could continue over the next couple of sessions," said Tony Dwyer, equity market strategist at FTN Midwest Research.

Fears about rising bond market rates, combined with concerns the Federal Reserve may have to raise its key short-term interest rate later this year, prompted the recent bond market selloff that pushed the 10-year yield to a five-year high. The bond selloff in turn sparked a downturn in stocks, though stocks had stabilized in recent sessions.

Investors have worried that rising rates could further damage the already battered housing market and crimp consumer spending. On top of that, higher rates could slow corporate borrowing, which has fueled much of the recent merger activity that's helped lift stocks this year.

In corporate news, Home Depot's $22.5 billion share repurchase plan, announced late Tuesday, provided support for stocks early in the session. Home Depot (up $1.76 to $40.03, Charts, Fortune 500) shares finished up 4.6 percent on the New York Stock Exchange.

Lower oil prices also helped stocks initially but those gains quickly faded. The government reported that weekly crude and gasoline supplies rose much more than expected, and U.S. light crude for July delivery sank 91 cents to settle at $68.19 a barrel, according to the New York Mercantile Exchange.

Investors will have plenty of economic readings to consider Thursday, including The Conference Board's leading indicator report for May and the Philadelphia Federal Reserve survey, a key regional manufacturing survey. The Labor Department will also release its weekly jobless claims report.

Elsewhere, Dow Jones (Charts) said its board will assume control in the News Corp. buyout negotiations from the Bancroft family, which has a controlling interest in the media firm. Meanwhile, Internet investor Brad Greenspan has made an offer to buy a 25 percent stake in Dow Jones, the Wall Street Journal reported late Wednesday. Dow Jones publishes the Journal, Barrons and other financial news products.

In earnings news, Morgan Stanley (Charts, Fortune 500) reported better-than-expected second-quarter earnings that jumped 40 percent. Its shares rallied initially on the news but closed down about 0.5 percent.

Package delivery company FedEx (up $1.74 to $109.80, Charts, Fortune 500) barely beat analyst estimates, sending its shares up 1.6 percent.

And consumer electronics retailer Circuit City Stores Inc. (up $0.03 to $16.10, Charts, Fortune 500) reported disappointing profits and warned about future earnings growth. The company's shares edged higher.

In other corporate news, Merrill Lynch (down $2.36 to $87.68, Charts, Fortune 500) has seized about $800 million of assets from two Bear Stearns (down $3.59 to $143.20, Charts, Fortune 500) hedge funds, which are heavily invested in securities backed by subprime mortgages, putting the funds' future in doubt.

Shares of the mutual fund manger Nuveen Investments (up $8.98 to $63.14, Charts) soared 16.5 percent after the company agreed Wednesday to a $5.75 billion buyout by a group of investors led by private equity firm Madison Dearborn Partners LLC.

Billionaire investor Kirk Kerkorian's Tracinda Corp. said Wednesday it was no longer interested in buying assets from casino operator MGM Mirage, which include the Bellagio and City Center properties. MGM (down $5.90 to $80.60, Charts, Fortune 500) shares tumbled on the news.

In Washington, U.S. Treasury Secretary Henry Paulson told a House committee that China is helping drive global growth but added the country needs to rely on increased domestic consumption and fewer exports in order to drive growth.

A handful of Federal Reserve officials delivered comments Wednesday, just a week before the central bank commences their two-day policy meeting, where they are expected to hold interest rates steady at 5.25 percent.

Dallas Federal Reserve President Richard Fisher, who is not a voting member on the Fed's Federal Open Market Committee, said there has been recent encouraging signs about U.S. inflation, but policymakers must remain vigilant.

Among individual issues, 25 of the 30 Dow components fell.

On a sector basis, energy, oil and natural gas stocks fell. One of the few sources of strength was the retail sector.

In currency trading, the dollar gained against the euro and the yen.

COMEX gold for August delivery fell $4.70 to $660 an ounce.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by nearly 4 to 1 on volume of 1.67 billion shares. On the Nasdaq, decliners also topped advancers by 5 to 2 on volume of 2.04 billion shares.