The Dow fell to its lowest level in nearly a month, while rate-sensitive utilities were among S&P 500 sectors with the biggest declines.

The yield on the benchmark 10-year U.S. Treasury note hit four-week highs at 4.6%, extending Tuesday's gains, after weak debt auctions.

“You continue to see this rise in bond yields, which is pressuring equities... It’s a continuation of this unstable, uneven recovery,” said James Abate, fund manager of the Centre American Select Equity fund.

Conflicting expectations on the size and the timing of potential interest rates have kept the market on edge since the start of this year.

Sticky inflation and hawkish comments from central bankers have forced traders to temper down rate cut expectations to only one by November or December, per the CME FedWatch Tool, from multiple cuts expected at the start of the year.

Stocks held their losses following the release of a U.S. Fed survey. It showed U.S. economic activity continued to expand from early April through mid-May but firms grew more pessimistic about the future while inflation increased at a modest pace.

According to preliminary data, the S&P 500 lost 40.26 points, or 0.76%, to end at 5,265.78 points, while the Nasdaq Composite lost 101.28 points, or 0.60%, to 16,918.60. The Dow Jones Industrial Average fell 411.27 points, or 1.06%, to 38,441.59.

The main focus this week will be on Friday's release of April's Personal Consumption Expenditure data - the Fed's preferred inflation gauge.

The Nasdaq retreated after closing above the 17,000 mark for the first time on Tuesday, while the small-caps Russell 2000 index also fell.

Marathon Oil advanced after ConocoPhillips said it would buy the company in an all-stock deal for a little over its $15 billion market value. ConocoPhillips slipped, dropping to the bottom of the energy sector.

Airline stocks fell, led by American Airlines, which declined after the company cut its second-quarter profit forecast.

Dick's Sporting Goods shot up after lifting forecasts for annual sales and profit, while Abercrombie & Fitch rose on raised annual sales growth forecast.

Investors will watch for results from Salesforce, set to report after the close.