NEW YORK - Wall Street's rally is going back on hold as investors worry about how much the government is borrowing.

Stocks turned lower Wednesday afternoon, sending major indexes down about 1 percent, after trading mixed earlier. Prices for the benchmark 10-year Treasury note slumped, driving its yield up to 3.66 percent from 3.55 percent late Tuesday.

The drop in bond prices followed an auction of $35 billion in five-year notes, part of the $101 billion in debt the government is issuing this week. Even though the auction itself was strong, traders said investors are speculating that demand could weaken as the government issues massive amounts of debt to fund its financial and economic rescue programs.

The market's unease came a day ahead of an auction of $26 billion in 7-year notes.

In addition to raising borrowing costs for the government, rising yields on Treasury debt could hamper an economic recovery since they are used as benchmarks for certain consumer loans such as home mortgages. Higher rates on those kinds of loans could prolong a recovery in the battered housing market.

"Stocks are following bonds," said John Brady, senior vice president of global interest rate products at MF Global. "Will the economy grow and expand vigorously in the face of sustained higher interest rates?"

In late afternoon trading, the Dow Jones industrial average fell 107.52, or 1.3 percent, to 8,365.97. The broader Standard & Poor's 500 index fell 9.83, or 1.1 percent, to 900.50, and the technology-laden Nasdaq composite index fell 9.56, or 0.6 percent, to 1,740.87.

On Tuesday, stocks soared on the Conference Board's surprisingly high reading of consumer confidence. The May index was the highest since September. Consumer sentiment does not always correspond to consumer spending, but the data nevertheless fueled investors' hopes for an economic rebound later this year.

The Dow is 29.4 percent above the lows it reached in early March, but still 40.2 percent below the record high it hit in October 2007.

Stocks had been jittery after a big advance Tuesday. General Motors Corp. said not enough bondholders agreed to swap their debt for company stock, meaning the automaker is almost certainly headed for bankruptcy protection.

GM has until Monday to either finish restructuring outside of court or file for Chapter 11. The announcement dampened the mood of investors who had grown more optimistic about the economy after the consumer confidence report.

"While consumer confidence looking forward is improving, the reality is the economy is still very weak," said Alan Gayle, senior investment strategist at RidgeWorth Capital Management.