NEW YORK (CNN/Money) - U.S. stock losses eased Wednesday morning after a report showing record home sales in May softened the blow from negative news out of WorldCom, Qwest International and Martha Stewart Living Omnimedia.

Shortly after 10:05 a.m. ET, the Nasdaq composite fell 31.38 to 1,392.61, below the closing low set after the Sept. 11 terrorist attacks; the index was down as much as 48 points earlier in the session. The Dow Jones industrial average fell 135.96 to 8,990.86; it was as much as 190 points lower. The Standard & Poor's 500 index lost 17.62 to 958.52.

New home sales rose 8.1 percent in May to a record annual rate of 1.03 million. Economists had expected the annual rate to rise to 920,000.

Troubled telecom service provider WorldCom (WCOM: Research, Estimates) said late Tuesday that it will have to restate financial results due to billions of dollars improperly accounted for. The company has also fired its chief financial officer and will layoff 17,000 employees.

Also impacting telecom was a published report alleging that the Securities and Exchange Commission will be taking a more aggressive stance in its investigation of how Qwest Communications (Q: down $1.36 to $2.83, Research, Estimates) accounted for up to $1.4 billion in sales and whether the company should have recognized the revenue right away.

J.P. Morgan (JPM: down $1.59 to $31.34, Research, Estimates) and Citigroup (C: down $1.47 to $37.65, Research, Estimates), both financial firms and Dow components, are being investigated as part of a new inquiry into the role banks played in developing questionable financing deals for energy companies, the Wall Street Journal reported. The deals were adopted by companies such as Enron and Dynegy (DYN: down $0.52 to $6.15, Research, Estimates).

In addition, federal investigators have expanded their probe of Martha Stewart's controversial sale of ImClone (IMCL: down $0.22 to $8.73, Research, Estimates) shares, a published report said, putting further pressure on shares of her company, Martha Stewart Living Omnimedia.

All of which may overshadow what had been expected to be the biggest news of the day: the interest rate announcement from the Federal Reserve, due at approximately 2:15 p.m. ET following the completion of a two-day policy setting meeting. Economists widely expect the central bank to leave rates unchanged at 1.75 percent, a 40-year low.

In response to the stock selling, Treasurys rose sharply, pushing the yield on the ten-year note down to 4.62 percent.

The WorldCom news took its toll on global markets. European bourses fell at midday, while Asian markets closed lower. The dollar fell against the yen and the euro. Brent crude oil futures fell 30 cents to $24.90.