Memory Usage

I am having a small issue with PostgreSQL 7.0.3 on FreeBSD 4.2 Stable.  When
I perform an update on a table with roughly 2 million rows, the postgres
process starts eating up memory until it eventually uses up all of the
memory and exits without finishing.  I have also seen the same thing happen
in complex SELECT statements that I have run.  The update statement is as
follows:

UPDATE pages SET createdtime = NOW();

Is there a reason why this would take up all of the memory??  Also the
select statement that caused the issue was a SELECT and GROUP BY that was in
the form of:

SELECT COUNT(*) AS hitcount, date_part('yy', createdtime) AS Year,
date_part('mm', createdtime) AS Month, date_part('dd', createdtime) AS Day
FROM Log group by Year, Month, Day

I found a better way to do this afterwards, but why wouldn't the database
utilize temporary tables to complete this query without using all the RAM?

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Nathan Barnett