Slumping Treasury Bond Prices Send Stocks Lower

Some traders fear demand for Treasurys could weaken as the government issues massive amounts of debt to fund its financial and economic rescue programs. The Federal Reserve has said it would buy up to $300 billion in Treasury debt this year as part of its efforts to keep borrowing costs low. But investors are now concerned that the central bank isn't buying as much as some had hoped.

Wednesday's stock market retreat also came as General Motors Corp. said not enough bondholders agreed to swap their debt for company stock, meaning the automaker is almost certainly headed for bankruptcy protection. GM has until Monday to either finish restructuring outside of court or file for Chapter 11. Value in its stock would be wiped out.

GM slid 29 cents, or 20.1 percent, to $1.15.

The prospect of a GM bankruptcy also made it more likely that the company would be plucked from among the 30 stocks that make up the Dow industrials. GM's tumbling stock price has hurt the index as shares fell from as high as $18.18 last June.

Many investors have been expecting GM to enter bankruptcy protection for some time, but the reality of it happening could still deal Wall Street a psychological blow.