Dow Jones: 12,630.03 (-130.33) SP 500: 1,342.08 (-15.08) Nasdaq: 2,393.08 (-18.27):US STOCKS nearly erased a three- day rally yesterday as energy and other commodity shares sank, feeding worries about the market's ability to stay on its upward path.

The second major breakdown in commodities in a week fuelled selling in other risky assets, including stocks. A stronger dollar and data showing a rise in US fuel supplies sent crude oil prices down more than 5 per cent, and the SP energy index slid 3 per cent.

About five stocks fell for every one that rose on the New York Stock Exchange, a broad exodus signalling investors saw little value in most industries.

The Energy Select Sector SPDR Fund fell 2.9 per cent to $74.28 while the US oil fund lost 4.2 per cent to $39.35 and the iShares silver exchange-traded fund dropped 8.3 per cent at $34.39.

Worries about global demand have fed losses in energy and materials shares. The SP energy sector is now down 7.8 per cent since the start of the month.

In a sign of weakness, the SP 500 broke below 1,340, a key technical level, and some analysts said a close below 1,330 would be bearish for the market.

The Dow Jones industrial average was down 1.02 per cent, the Standard Poor’s 500 was down 1.11 per cent and the Nasdaq Composite Index was down 0.93 per cent.

The 1,340 level roughly coincides with the 20-day average, which the market has closed above since April 20th. If the SP 500 closes below that average, the Bollinger bands chart shows a near-term target just above 1,300.

In the foreign exchange market, the euro dropped to a three-week low against the dollar as investors unwound risky trades in commodities and higher-yielding currencies and bought back the greenback in a flight to quality bid.

US government debt prices also rose in a safety bid.

Many strategists saw the commodity declines as a long-term positive for the market, giving some relief from higher commodity costs to consumers and companies.

The SP retail index ended the day up 0.06 per cent.

About 7.72 billion shares were traded on the NYSE, NYSE Amex and Nasdaq, compared with the average of 7.73 billion so far in 2011. Declining stocks outnumbered advancing ones on the Nasdaq by a ratio of about 10 to three. – (Bloomberg)