updated 11/9/2010 4:04:01 PM ET 2010-11-09T21:04:01

Stocks fell Tuesday as commodities rallied to two-year highs.

Gold, silver and soybeans jumped to levels last seen in October 2008 as investors moved money into hard assets in anticipation that a massive economic stimulus plan announced by the Federal Reserve last week will continue to weaken the dollar. Investors are expecting that commodities will hold their value even if the dollar falls.

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The Fed plans to buy $600 billion in U.S. government bonds over the next six months in an effort to push interest rates even lower and encourage borrowing and spending. It's a tactic called quantitative easing, one that the Fed used successfully in 2008 to restore confidence in financial markets at the height of the credit crisis.

"The market is still being driven by the Fed's actions and it will be for a while," Dirk van Dijk, senior equity strategist at Zacks.com.

Treasury prices fell despite a strong auction of 10-year notes. Investors are concerned that demand may be weak for 30-year bonds in an auction upcoming Wednesday. The price of the 30-year bond was down sharply, losing about two full points, or $2 per $100 in face value. Its yield rose to 4.23 percent, the highest level since June 10.

The 30-year bond wasn't one of the maturities being heavily targeted by the Fed's purchasing program announced last week, and its long maturity makes it more sensitive to inflation than shorter-term notes.

Many investors worry that the Fed's bond-buying program could lead to a jump in inflation down the line, which would erode the value of all bonds since their fixed payouts would become worth less over time. With the Fed now focused on encouraging some inflation, "it might be hard for investors to convince themselves to buy" at Wednesday's auction, said John Briggs, a fixed income analyst at RBS.

The dollar has been falling against other currencies in anticipation of the Fed's stimulus program, but it gained 0.6 percent against an index of other currencies Tuesday as new troubles emerged in Ireland, one of the weaker countries that use the euro, Europe's shared currency.

Investors are concerned that Ireland's government will not be able to pass additional spending cuts and will have to ask for financial assistance. Greece, another member of the euro club, was forced to seek a bailout from other European countries in April after investors dumped the countries bonds in the wake of a fiscal crisis there.

According to preliminary calculations, the Dow Jones industrial average fell 58.96, or 0.52 percent, to 11,347.88. The index lost 37.24 on Monday following six days of gains.

The broader Standard & Poor's 500 index fell 9.69, or 0.79 percent, to 1,213.56, while the technology-focused Nasdaq composite index fell 17.07, or 0.66 percent, to 2,562.98. The Nasdaq had finished slightly higher Monday.

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Telecommunications and energy companies were the only groups of the S&P 500 to gain. Financial shares, which fell 1.6 percent, were the worst performing industry group.

Gold rose further, a day after trading above $1,400 for the first time. Gold is at a record in dollar terms but is still well below its peak in the early 1980s after accounting for inflation.

The weakening dollar has been benefiting gold as investors seek other assets seen as safe places to park money. Some gold investors see the metal as a hedge against national currencies losing their value as a result of inflation.

Gold was given another boost Monday when World Bank President Robert Zoellick wrote an op-ed piece in the Financial Times arguing that gold should have a place in the world's monetary system. Gold rose $6.90 to $1,410.10 an ounce, a 0.5 percent rise from late Monday.

Silver also rose, jumping 5.4 percent to settle at $28.906 an ounce. The metal's large gains may be a result of traders buying silver because it had fallen below its typical price relationship with gold. Gold usually trades at 50 times the price of silver, said Rick de los Reyes, a metals and mining analyst at T. Rowe Price.

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"Gold is someone's first instinct when they are buying for all of the reasons they're buying gold right now, and silver usually lags somewhat," he said. Silver, which has a greater use for industries than gold, is rising alongside other industrial metals like platinum and copper.

In corporate news, Chevron Corp. shares fell 1.1 percent after announcing a deal to buy the natural-gas producer Atlas Energy for $4.3 billion, following other natural gas deals by rival energy giants Exxon Mobil Corp. and Royal Dutch Shell PLC.

Shares of Dean Foods Co. sank 17.7 percent after the country's largest dairy company announced disappointing results. The company has slashed prices to compete with supermarkets selling milk under their own labels. Dean Foods shares have slumped 52 percent for the year, making it one of the worst performing stocks in the S&P 500 index.

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