The selling, which followed the latest disappointing economic report, came after 11 weeks of heavy selling and eroded much of July's huge, but short-lived, rally. Analysts said that in the absence of any encouraging economic data, there was little reason for investors to do much buying. Doubts about the banking sector also pressured stocks.

The Dow closed down 269.50, or 3.2 percent, at 8,043.63, according to preliminary calculations, for a three-session loss of 692.96 points.

Broader stock indicators also fell. The Standard & Poor's 500 index lost 29.64, or 3.4 percent, to 834.60, and the Nasdaq composite index dropped 41.91, or 3.4 percent, to 1,206.01 ­ a new 5-year low. It last closed lower on April 21, 1997, when it stood at 1,203.95.

Today's selling followed a report from the Institute for Supply Management that showed growth in the U.S. service sector slowed in July, but at a slower pace than many economists had predicted. The group's non-manufacturing index stood at 53.1 in July, after standing at 57.2 in June and 60.1 in May.

The news compounded a string of lackluster economic reports released late last week ­ including a weaker-than-expected gross domestic product, disappointing outlooks for business and manufacturing and flat unemployment figures ­ that raised fears that the economy was slipping back into recession.

More fighting in the Middle East, as well as concerns about the fiscal situation in Latin America, added to the uncertainty. Today, Uruguay received $1.5 billion from the U.S. Federal Reserve to help its ailing financial system. Brazil reportedly is seeking about $10 billion in similar assistance.

Investors viewed the turmoil as one more reason to lock in profits from the market's late-July rally, which is fading quickly. At today's close, only about 340 points remained of the 1,009-point rally that Dow racked up between July 24 and July 29.

"There hasn't been any stimulus to help the markets forward. So it's understandable that we're giving up ground," said Larry Wachtel, a market analyst at Prudential Securities. "We're doing it grudgingly. But the trend is still downward. I don't see anything that's going to rescue it."

Procter & Gamble fell $2.40 to $87.44 despite fourth-quarter results that exceeded Wall Street's expectations, but failed to impress investors who had hoped for more.

Financial stocks were also lower. That included Citigroup, which slid $2.23, or 7.2 percent, to $28.65, following a cautious note about the company's prospects from Lehman Brothers.

Among tech stocks, Texas Instruments dropped $1.77 to $18.20. Cisco Systems, which is expected to report earnings after the market closes tomorrow, tumbled 53 cents, or 4.5 percent, to $11.36.

Retailers also retreated. Wal-Mart fell 50 cents to $45.60, while J.C. Penney lost 10 cents to $15.91.

Analysts said the negative tone reflects investors' fears that the market ­ and business ­ conditions are worsening. They say individual investors, who have watched their portfolios disintegrate over the past two years, have become extraordinarily risk-averse. Professional traders are also wary, and frequently unwilling to make long-term commitments to the market.

The result is a high level of volatility, which further feeds investors' lack of confidence. With the July rally withering, many would-be buyers have become even more reluctant to take any more chances for fear of more losses.

"Even if the rally comes back, you've still got an environment that's fragile at best," said Michael Murphy, head trader at Wachovia Securities. "What we need, I think, is to trade sideways for a little bit and maybe go back and test the bottom again."

Declining issues led advancers 3 to 1 on the New York Stock Exchange. Volume was brisk.

The Russell 2000 index fell 9.33 to 367.12.