Stocks were sharply lower Wednesday, with the Dow and S&P 500 pulling back from record levels, as political uncertainty in Italy sparked fresh worries over the euro zone and the euro dropped to a four-month low.
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The Dow Jones Industrial Average tumbled nearly 100 points, dragged by Boeing and JPMorgan.
The S&P 500 and the Nasdaq were also sharply lower. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped above 13.
Major averages ended near their best ever levels on Tuesday, with the Dow posting a new high and S&P 500 finishing less than 2 points from its closing peak.
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All key S&P sectors were firmly in the red, led by materials and industrials.
On the economic front, pending home sales slid 0.4 percent in February, according to the National Association of Realtors. Economists polled by Reuters expected a 0.9 percent decline, compared with a 4.5 percent rise in the prior month.
In Europe, political deadlock continued in Italy as the country's main leadership candidate Pier Luigi's Bersani reportedly said that only an "insane person" would want to govern the nation now, adding that Italy is "in a mess and faces a difficult year ahead."
Bersani made the remark after the anti-establishment "Five Star Movement" party headed by comedian Beppe Grillo again refused to form a coalition government with Bersani, thwarting his latest attempts to form a governing alliance.
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A political stalemate since its inconclusive elections in late February has spiked concerns over how the country will handle its growing debt problems. Italy paid more to borrow over five years than it has since October at its latest auction, indicating worries over its financial situation.
The euro extended its losses below $1.28 against the U.S. greenback, its lowest level since late November.
Elsewhere in Europe, Cyprus is finalizing financial control measures to prevent a run on its banks, which have been shut for a week since the country agreed to a conditional 10 billion euro ($12.8 billion) bailout from international lenders. Cypriots have been lining up to withdraw cash from ATMs, with limits at 100 euros a day for some banks.
"Banks will open on Thursday ... We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals," Cypriot Finance Minister Michael Sarris said in an interview on Cypriot television.
"Cyprus is a reason to remind investors that Europe is a source of risk, but I'm not sure Cyprus itself is going to be enough [for a market pullback from the recent run-up]," said Thomas Lee, chief U.S. equity strategist at JPMorgan. "The big picture still points to a major secular bull market being underway, with at least another four years left, led by durable goods."
Trading is likely to be thin ahead of the three-day Easter weekend. U.S. markets will be closed Friday for Good Friday.
Wal-Mart declined after the world's largest retailer said that probes into alleged foreign bribery at its stores are likely to result in a financial loss. Separately, the company said it would start using stores to get Internet orders to shoppers faster, amid growing competition from online rivals such as Amazon.com.
Boeing edged lower as its 787 Dreamliners face a temporary ban on some of the transocean flights, which would be a costly new challenge for the company.
Cliffs Natural Resources plunged to lead the S&P 500 laggards after Morgan Stanley downgraded the iron ore and metallurgical coal producer to "underweight" from "equal-weight." Rivals Alpha Natural Resources and Peabody Energy also traded lower.
Weekly mortgage applications rebounded last week as interest rates pulled back for the first time in three weeks, according to the Mortgage Bankers Association.
Paychex and Red Hat are among notable companies scheduled to report earnings after the closing bell.
Several members of the Federal Reserve are expected to speak throughout the day, including Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren.
Meanwhile, crude oil inventories for last week will be released by the Energy Department at 10:30 am ET. Inventories rose by 1.31 million in the prior week.
The Treasury is slated to auction $35 billion in 5-year notes with the results available shortly after 1pm ET.
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?By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
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