Dow Falls Below 10,000 on Pay Cut Plan, Downgrade

Updated with stock prices.

NEW YORK ( TheStreet) -- Stocks sold off late Wednesday after Wall Street learned that Washington would restrict executive pay at companies receiving bailout funds and Wells Fargo was downgraded.

The Dow Jones Industrial Average fell 92.12 points, or 0.9%, to 9949.36, while the S&P 500 shed 9.66 points, or 0.9%, to 1081.40. The Nasdaq gave up 12.74 points, or 0.6%, to 2150.73.

The Treasury Department is planning to cut pay in half, on average, compared with 2008 for the for the best-paid executives at Citigroup, Bank of America ( BAC), American International Group ( AIG), General Motors, Chrysler and the two automakers' financing arms, the New York Times reported Wednesday. Salaries, excluding bonuses and retirement packages, are set to be chopped by 90%.

Stocks gave up gains late Wednesday afternoon after analyst Dick Bove lowered his rating for Wells Fargo ( WFC) to sell. The bank topped estimates with its quarterly report earlier in the day, fell steeply after the downgrade, ultimately losing 5.1%.

"The bottom line is overall we've had a weak reaction to earnings, and at the same time, the option expiration was last week -- this is the first week of a five week options cycle -- and historically that's more bearish," says Ryan Detrick, senior technical strategist for Schaeffer's Investment Research. "So a little bit of selling this week isn't a shock."

Yahoo! ( YHOO) and Morgan Stanley ( YHOO) were still 2.9% and 4.8% higher, respectively, after after strong quarterly reports.

But other reports -- from the likes of Wells Fargo and Deutsche Bank ( DB), for instance -- continued to top estimates, but failed to impress.

"We knew that the majority of companies were going to beat because we had no warnings from companies going into the quarter ... and then the earliest leaders - JP Morgan and Intel, for example - came out with just blow away numbers," says Marc Pado, chief market strategist at Cantor Fitzgerald.

"So immediately investors extrapolated those kind of performances onto the rest of the stocks within the sectors, and as that happens the market moved up in advance of the earnings," says Pado. "Now were getting to the point where just beating the numbers isn't really good enough, your stock might hold onto recent gains, but you have to have blow away numbers, like Caterpillar, to extend the rally." Click below to hear Marc Pado discuss changing expectations for earnings and what to look for next week.

Shares of Germany's biggest bank fell 3.2% after third-quarter pretax profit topped the median estimate.

Eli Lilly ( LLY), which gave up 4.5%, beat bottom- and top-line expectations and raised full-year guidance.

Boeing ( BA) shares fell 2.4% after it reported a wider-than-expected loss on light revenue and reduced its full-year earnings guidance.

Economic data will include the Federal Reserve's beige book, a report on economic activity by region.

The Federal Reserve's Beige Book, a regional look at economic conditions in the Fed's 12 districts, said that there appears to be stabilization or modest improvements in many sectors since the last report. But, while gains in economic activity outnumber declines, "virtually every reference to improvement was qualified as either small or scattered," according to the report.

Residential real estate and manufacturing had the most positive reports, while consumer spending and nonfinancial services were mixed, and commercial real estate was among the weakest sectors.

As many as 14 states now have double-digit unemployment, CNBC reported earlier in the day.

Crude oil futures rose $2.76, to $81.88 as the dollar hit a 14-month low relative to a basket of foreign currencies and the Energy Information Administration reported that gasoline inventories fell by 2.2 million barrels, outpacing the 800,000 decline expected. Oil and distillate inventories rose 1.3 million barrels and fell 800,000 barrels, respectively, in line with expectations.

Stocks overseas were mixed. In Europe, the FTSE in London rose 0.3%, while the Dax in Frankfurt edged up 0.4%. In Asia, Japan's Nikkei and Hong Kong's Hang Seng gave up 0.03% and 0.3%, respectively.

-- Written by Elizabeth Trotta in New York.