The Dow Jones industrial average, down nearly 101 points during the afternoon, finished with a loss of 58.92 at 6,896.56.
Broader indicators also fell despite a fairly encouraging session in the bond market, where prices rebounded after an early drop that briefly boosted long-term interest rates above 7 percent for the first time since September.
Decliners outnumbered advancers by nearly a 2-to-1 margin on the New York Stock Exchange, with 865 up, 1,670 down and 815 unchanged. NYSE volume totaled 467.30 million shares vs. 494.43 million yesterday.
The Standard & Poor's 500-stock list fell 6.05 to 789.66, and the NYSE's composite index fell 2.97 to 415.40. The Nasdaq composite index fell 10.09 to 1,269.34, and the American Stock Exchange composite index fell 0.79 to 595.45.
Bonds initially sank after the Commerce Department reported that construction of new homes and apartments unexpectedly shot up 12.2 percent in February to the highest level in nearly three years.
Although there are few signs of rapid inflation, analysts worry the economy may be growing too fast and generating price pressures.
Those fears have been fed by a wide array of data ranging from labor markets to consumer spending. Federal Reserve officials are scheduled to meet next week to decide whether to raise interest rates.
As bond prices fell, the yield on the 30-year Treasury bond -- a key determinant of corporate and consumer borrowing costs -- briefly jumped above 7 percent before pulling back near late yesterday's 6.95 percent.
Rising inflation or interest rates can make the fixed payoff on bonds less attractive, pushing down prices to improve the yield. Higher interest rates at the Fed or the bond market, meanwhile, can hurt stocks by slowing consumer spending and raising corporate borrowing costs. A higher, guaranteed yield on Treasury bonds can also sap demand for stocks.
The shaky interest rate backdrop continued to drag down banks and other financial services companies, which enjoy a smaller profit margin on loans when rates rise.
The most active NYSE issue was Micron Technology Inc., which fell $4.125 to $40 despite late yesterday's slightly better-than-expected earnings report by the chipmaker.