NEW YORK (TheStreet) -- U.S. stocks fell Wednesday as a surge in lending by the European Central Bank renewed fears of financial instability throughout the region.

The Dow Jones Industrial Average slipped 140 points, or 1.1%, to close at 12,151. Bank of America ( BAC), Alcoa ( AA) and Cisco ( CSCO) led the losses as all 30 components of the index fell.

The S&P 500 dropped 16 points, or 1.3%, to 1,249, with raw materials and energy shares leading losses by all ten industry groups as a strongerdollar led commodities lower. The Nasdaq declined 35 points, or 1.3%, to 2,590.

On Wednesday, the euro was down 1% against the dollar, nearing its lowest level since January, after the European Central Bank revealed that lending to eurozone banks surged by 32% in the week ended Dec. 23, renewing concern that the region will be unable to contain its debt crisis.

The ECB's balance sheet expanded by 239 billion euros to 2.73 trillion euros while lending to EU banks surged 214 billion euros to 879 billion euros last week. Announcements about the ECB's expanding balance sheet added to concern evoked by a Wall Street Journal editorial this morning from former Dallas Federal Reserve Vice President Gerald O'Driscoll that claimed the Federal Reserve was covertly bailing out Europe through the use of dollar liquidity swaps.

Concern over ECB lending erased gains in early trading after Italian borrowing costs halved during an auction of 9 billion euros worth of bonds. Italian six-month borrowing costs declined to 3.251% at today's auction from 6.504% at the last auction on Nov. 25. Tomorrow, Italy will sell bonds maturing in 2014 to 2022. The government hopes to sell more than 20 billion euros in total through its auction series this week.

"Today's Italian auction results were clearly a constructive sign for the sovereign's credit and arguably a bigger test of sentiment than tomorrow's longer-dated supply. Nonetheless, Thursday the market is once again tasked with taking down more Italian debt, this larger portion of the week's offerings in maturities ranging from 2014 to 2022," wrote Ian Lyngen, market strategist with CRT Capital Group. "That said, given the relative success of today's shorter-dated paper, expectations are optimistic for the balance."

ECB lending concerns outweighed sinking Italian bond rates, leading European stocks to erase earlier gains. Germany's DAX closed down 2%, while London's FTSE lost 0.9%. A decline in Japanese industrial production and a drop in the confidence of South Korean manufacturers pressured Asian stocks overnight. Japan's Nikkei Average settled 0.2% lower, and Hong Kong's Hang Seng was down 0.59%.

In corporate news, Cavium ( CAVM) lowered its financial outlook to reflect weak demand from both the enterprise and service provider markets as well as the negative impact of a hub transition by one of its major customers. The San Jose, Calif.-based company now sees revenue of $56 million to $57 million for its fiscal fourth quarter ending this month. The current average estimate of analysts polled by Thomson Reuters is for revenue of $59.7 million in the three-month period. Shares of Cavium, off nearly 33% so far in 2011, declined 1.2% to $28.14.

The New York Times ( NYT) said after Tuesday's closing bell that it's agreed to sell its regional media group business, which includes 16 regional newspapers and other assets, to Halifax Media Holdings LLC for $143 million. The company expects the deal to close within a few weeks and expects to record an after-tax gain on the transaction in its fiscal first quarter. It anticipates net after-tax proceeds of $150 million from the sale. Shares of New York Times, which were down 21% this year through yesterday, were fell 1% to $7.68.

Emcore ( EMKR) reported a fiscal fourth-quarter loss of $14.3 million, or 15 cents a share, after Tuesday's closing bell, wider than its year-ago loss of $885,000, or 2 cents a share. The Albuquerque, N.M.-based maker of semiconductor components said revenue totaled $52.1 million, down 4% year over year but in line with its guidance. Emcore shares, down 20.3% so far in 2011, advanced 6.4% to 92 cents.

February oil futures once again fell below $100 a barrel, settling down $1.98 to $99.36. Prices surged Tuesday after Iran threatened to stop oil flow from the Gulf. In other commodities, February gold futures settled $31.40 lower at $1564.10 an ounce, it's lowest level since July.

The dollar rose against a basket of currencies, with the dollar index spiking 0.8% The benchmark 10-year Treasury gained 24/32, diluting the yield to 1.925%.

There were no major economic reports scheduled for Wednesday.

-- Written by Kaitlyn Kiernan in New York.

>To contact the writer of this article, click here: Kaitlyn Kiernan

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