Wall St drops on Greece woes, Treasury auction eyed

NEW YORK (Reuters) - The Dow industrials and S&P 500 fell on Wednesday on renewed worries over Greece's financing woes and ahead of an auction of Treasury notes that could further drive up yields and hurt a fragile housing recovery.

The Treasury will sell the 10-year notes as the prospects for a stronger economy have propelled the yield on the note, a benchmark for mortgage rates, toward 4 percent. Investors worry that if rates go too high, the housing revival could stall.

European stocks fell slightly as investors questioned the credibility of Greece's aid package as the Greek finance minister said local banks, hit by a series of credit rating downgrades, asked for more financial support.

"One of the key dynamics is a renewal of a tired and familiar ... (negative) story out of Greece, with the equity market there down almost 3 percent on the day, and bond yields really blowing out pretty dramatically," said Craig Peckham, equity trading strategist at Jefferies & Co in New York.

The Dow Jones industrial average dropped 30.68 points, or 0.28 percent, to 10,939.31. The Standard & Poor's 500 Index fell 2.70 points, or 0.23 percent, to 1,186.74. The Nasdaq Composite Index added 2.79 points, or 0.1 percent, to 2,439.60.

U.S. equities have feasted on five weeks of gains, pushing major indexes to highs not seen in a year and a half. The Dow could pierce the psychologically important 11,000 level.

Shares in Family Dollar Stores Inc rose 4.6 percent to $39.52 after the discount retailer reported higher-than-expected quarterly profit on a boost from longer store hours and sales of private label items, and forecast earnings above estimates.

Monsanto Co rose 0.6 percent to $69.93 after the agricultural seed company reported profit below expectations, but analysts said they were surprised results weren't worse.

Helping the banking sector, Goldman Sachs raised its view on a host of regional banks, including KeyCorp which was upgraded to "buy" from "neutral." The company's shares rose 3.7 percent to $8.78.

The Nasdaq was helped by strength in ICAP technology stocks

such as Apple Inc , up 0.5 percent to $240.86, and Cisco Systems Inc , up 1 percent to $26.48.

Federal Reserve Chairman Ben Bernanke is due to speak on "Economic Challenges: Past, Present and Future" at a Dallas luncheon later Wednesday, and investors will scour his comments for clues about the Fed's thinking on interest rates and the economy, given recent better-than-expected economic data.

(Reporting by Edward Krudy; editing by Jeffrey Benkoe)