Updated from 4:27 p.m. EST

Stocks closed lower Thursday as long-term interest rates jumped on a report showing the U.S. housing market remains red hot. Surging oil prices contributed to the pressure.

The Dow Jones Industrial Average lost 47.14 points, or 0.42%, to 11,270.29. The S&P 500 fell 3.37 points, or 0.26%, to 1,301.67, and the Nasdaq dropped 3.20 points, or 0.14%, to 2,300.15.

Blue chips entered trading at their best levels since May 2001. For the year to date, the Dow is up 5.3%, while the S&P 500 and the Nasdaq have risen more than 4%. Both the Dow and the S&P are heading for their best first quarters since 1999.

Peter Cardillo, chief market analyst at SW Bach, attributes the declines to rising yields and the advance in oil prices. "This is just a blip," Cardillo adds. "We'll see weaker housing data going forward."

The market initially perked up as the National Association of Realtors said existing-home sales unexpectedly rose 5.2% in February to an annualized rate of 6.91 million. The reading, which represented the biggest percentage gain in two years, was much better than expected.

The Dow Jones Home Construction index ended the day up 3.6%, and the Philadelphia Stock Exchange Housing Sector index added 2.2%.

But the report led to a selloff in bonds, and stocks followed. The 10-year Treasury bond had been climbing but ended the session down 8/32 to yield 4.73%. The 30-year slid 14/32, and the two-year shed 2/32 to yield 4.76%.

The dollar rose against the yen and euro, and has been strong all week as the market digested Federal Reserve Chairman Ben Bernanke's optimistic comments on the economy. Higher rates make dollar-denominated assets more attractive to overseas investors, and traders now believe that are at least two interest-rate hikes in the pipeline.

To view Gregg Greenberg's video take on today's market, click here .

"There had been expectations about Bernanke and the Fed, that they would raise rates next week and then maybe pause," says Paul Mendelsohn, chief investment strategist at Windham Financial Services. "Now Bernanke has indicated that he may be going as far as 5.25%. ... It changed the market perception, so we're picking up some resistance at these recent high levels."

Mendelsohn says that there are few buyers above 1,310 on the S&P, and that there seems to be support near 1,295. "We're stuck in a tight range with a lot of volatility as we try to break out."

"We had a nice market move yesterday, so to some extent I think we're backing and filling," says Todd Leone, head of listed trading at Cowen & Co.

"It's not the worst thing in the world," he says, adding that taking some money off the table at high levels is healthy for the market. "We're not going straight up. It's been up 100 points, down 50, but the basic trend is higher."

In other economic news, the Labor Department said 302,000 first-time jobless claims were filed in the latest week, just below the consensus forecast that 305,000 applications would be filed.

Higher oil prices also weighed on the market. Crude recovered from declines in the previous session amid a 6% plunge in gasoline prices. Light, sweet crude for May delivery rose $2.14 to close at $63.91 a barrel on the Nymex. Oil prices briefly hit $64.

The gains bolstered by an Energy Department report showing that gas inventories dropped by 23 billion cubic feet last week, in line with analysts' estimates, and that oil inventories unexpectedly fell by 1.3 million barrels to 338.6 million barrels last week, vs. an expected 2.4 million-barrel increase.

The rise in oil prices lifted energy sector stocks, with the S&P 500 Energy Sector Index up 1.1%. But the specter of rising fuel prices took the wind out of the transportation sector, and the Dow Jones Transportation Average lost 1.99%, its largest fall since June.

Transportation shares posted their largest slide in nine months, with YRC Worldwide ( YRCW), the largest U.S. trucker, cutting its profit forecast on fewer shipments and higher costs. YRC shares lost 14.9% Thursday.

"There's a lot of sector rotation going on," says Windham's Mendelsohn. "A lot of money is moving though the market that's not sure where it wants to be."

Comex gold for April delivery ended the session down 90 cents to $550.80 an ounce.

On the corporate side, General Motors ( GM) said an investor group led by Kohlberg Kravis Roberts, Five Mile Capital Partners and Goldman Sachs Capital Partners acquired a majority stake in GMAC Commercial Holding, part of General Motors Acceptance Corp., for more than $1.5 billion. GMAC itself remains on the block.

After the bell Wednesday, Adobe ( ADBE) reported a 31% decline in first-quarter earnings, although the results topped estimates. Looking ahead, however, the software maker put its second-quarter profit at 30 cents to 32 cents a share on sales of $640 million to $670 million. Analysts were forecasting 32 cents a share and $675.7 million.

The other big tech story was Dell's ( DELL) purchase of Alienware, a high-end PC maker whose machines are a favorite of game players. The price of the transaction wasn't disclosed.

Shares of Advanced Micro Devices ( AMD), which supplies chips to Alienware, closed up 1.1%, after rising more than 3% in morning trading.

Scholastic's ( SCHL) loss widened to $15.5 million, or 37 cents a share, in its third quarter, compared with $800,000, or 2 cents a share, a year ago. The company blamed promotional expenses for the latest-period loss, which was 30 cents worse than expected.

KB Home ( KBH) said first-quarter earnings rose 42% from a year ago to $174.5 million, or $2.02 a share, beating estimates by 6 cents a share. The homebuilder reported lower orders in the period but backed full-year profit guidance.

General Mills ( GIS) reported third-quarter earnings of $246 million, or 68 cents a share, up 7% from a year ago. Adjusted earnings were 4 cents ahead of estimates and the company backed its full-year forecast.

In analyst actions, Prudential upgraded ConocoPhillips ( COP) and Marathon Oil ( MRO), while Oppenheimer lowered its price target on XM Satellite Radio ( XMSR) to $38.

UBS upgraded Yahoo! ( YHOO) to buy from hold, citing a relatively low valuation and the potential for a first-quarter earnings beat.

Market breadth was mixed. Decliners barely beat out advancers on the New York Stock Exchange, where 1.4 billion shares changed hands. Winners narrowly topped losers on the Nasdaq, as 2.0 billion shares changed hands.

Overseas markets were mixed, with London's FTSE 100 ending the session down 0.3% to 5,990.1 and Germany's Xetra DAX closing up 0.2% at 5942.57. In Asia, Japan's Nikkei held steady overnight at 16,489, while Hong Kong's Hang Seng added 0.8% to 15,731.