YAHOO [BRIEFING.COM]: A high-volume selling effort in response to downgrades on the sovereign debt of Greece and Portugal sent stocks to their worst percentage loss in more than two months, but drove the dollar to its best gain in four months.

Early trade was rather lackluster as widespread weakness among overseas markets weighed on mood of morning participants, so much that better-than-expected earnings and guidance from Texas Instruments (TXI 38.20, -1.33), 3M (MMM 87.97, +0.53), and DuPont (DD 39.40, -1.55) were generally disregarded by the broader market.

Data didn't do anything to improve the mood either. The S&P/CaseShiller 20-City Composite made its first increase since 2006 with a 0.6% year-over-year increase, but that was still weaker than the 1.3% annual increase that had been expected.

Consumer confidence climbed in April as the Conference Board's Consumer Confidence Index came in at 57.9, which was not only higher than the 53.5 that had been expected, but was the best reading since August 2008.

Weakness quickly worsened when it was learned that credit analysts at Standard & Poor's downgraded Greece's debt to junk and cut Portugal's debt two notches to A-. Subsequent selling pressure sent the Dow down roughly 150 points in just 30 minutes. It even pushed through its 20-day moving average for the first time since February. It was never able to recover and, as a result, finished near its session low.

The wave of selling sent volatility sharply higher. In fact, the Volatility Index made its way up more than 30% to its highest level since February.

Many market participants fled to the dollar for safety. That gave the greenback a 1.3% gain against a basket of foreign currencies. The euro was especially weak as it fell to 1.3179 against the buck. That puts it on par with its one-year low against the dollar.

Though the dollar drove many commodities lower, such that the CRB Commodity Index dropped 1.9%, gold gained 0.7% to close pit trade at $1162.20 per ounce. Its status as a safe haven helped it extend the advance into electronic trade.

Treasuries also garnered support. The benchmark 10-year Note advanced nearly one full point in its strongest move in just over one month. That dropped its yield below 3.70% for the first time in one month.

Trade this session was backed by heavy participation. Trading volume on the NYSE surged to nearly 1.7 billion shares, which is the most for any non-options expiration session this year. It also made for the fifth straight session in which trading volume has exceeded the 200-day moving average.

Commodities lost nearly 2% this session. Practically every asset class was lower this session. Still, the largest gain in the dollar index in nearly one month did not help commodity prices.

One of the lone exceptions came from gold futures. June gold closed 0.7% higher at $1162.20 per ounce. May silver was not able to salvage a gain this session. It closed 1.2% lower at $18.12 per ounce.

Energy closed down ~1.2 % this session. June crude oil futures sold off but found support at the $82 level. It closed down 2.1% at $82.44 per barrel. May natural gas closed 1.0% lower at $4.22 per MMBtu.

The action sets the stage for the FOMC's latest policy statement, which will be released at 2:15 PM ET. No change in interest rate targets is expected, so traders will take their cues from the FOMC's actual directive.

Advancing Sectors: (None)
Declining Sectors: Financials (-3.4%), Materials (-3.2%), Consumer Discretionary (-2.9%), Energy (-2.8%), Industrial (-2.6%), Tech (-2.0%), Utilities (-1.8%), Consumer Staples (-1.7%), Telecom (-1.2%), Health Care (-1.1%) DJ30 -213.04 NASDAQ -51.48 R2K -2.4% SP400 -2.4% SP500 -28.34 NASDAQ Adv/Dec 535/2218 NYSE Adv/Vol/Dec 493/1.66/2604