Stocks fell on Wednesday on worry that rising interest rates could put a damper on consumer and business spending.

After the Treasury auctioned 10-year notes on Wednesday afternoon, the benchmark debt was down 26/32 in price, with the yield rising to 3.9635 percent.

This whole platform in trying to stem this recession is based on large funds, government intervention and lower rates, said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut.

It probably hasn't crossed over to where stocks will reverse, but it makes for some hesitation as you start seeing rates getting closer to crossing over 4 percent.

The Dow Jones industrials average <.DJI> dropped 94.02 points, or 1.07 percent, to 8,669.04. The Standard & Poor's 500 Index <.SPX> fell 10.60 points, or 1.12 percent, to 931.83. The Nasdaq Composite Index <.IXIC> slid 25.88 points, or 1.39 percent, to 1,834.25.

In its latest Beige Book survey of the economy, the Federal Reserve said U.S. economic conditions were weak or got worse through May, but some areas of the country saw signs the contraction was moderating.

Construction equipment manufacturer Caterpillar , down 3.1 percent to $37.06, was one of the biggest drags on the Dow.

While gains in oil and other commodities earlier supported stocks globally on hopes economic activity was quickening, U.S. investors worried that higher prices would fuel inflation and dent an economic recovery.

(Additional reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

Inflation