Adding to the negative sentiment was the January report on factory orders, which, although negative, was stronger than expected. Orders were down 4.5 percent when analysts were expecting a 5.3-percent decline. The huge decrease in aircraft orders in January weighed on the report, but when transportation was excluded, orders actually rose 1.6 percent -- the third straight month of increases. This signals a likely need for manufacturers to ramp up production.

The yield on the benchmark 10-year note, which lenders use as a guide to set mortgage rates, continued to climb -- closing at 4.73 percent, its highest level in 20 months. Steadily rising yields have forced lenders to raise mortgage rates on most products.

Stocks fall on interest-rate worries

Wall Street opened to the upside on news that AT&T would purchase BellSouth for $67 billion in stock. Typically, AT&T stock fell -- down 3.5 percent -- and BellSouth rose 9.7 percent. The equity markets generally approve of such mergers, and this one had a positive influence, initially. The major indexes traded in positive territory right up to the last 90 minutes. When Treasury yields continued to climb, investors sold their stocks and took the cash. There was no rotation today. Even a drop in oil prices, which fell $1.26 to $62.42 a barrel couldn't boost stocks.

Rate-sensitive shares, such as Alcoa and Caterpillar, were down 2 percent and 1.8 percent, respectively, and led the Dow Jones industrials in losses. 3M also fell 1.3 percent. GM added 3.1 percent after announcing the sale of Suzuki, but other gains were slim.

The Nasdaq had another tough session, weighed down by concerns that higher interest rates will slow capital investment.

As of 4 p.m., EST:

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