Retailers were punished after Wal-Mart lowered its December sales expectations.

An afternoon sell-off followed a morning rally that had been sparked by a government report indicating that new claims for unemployment benefits were dropping. The Dow Jones industrial average climbed more than 116 points before reversing direction.

At the end of regular trading, the Dow was down 15.50, or 0.18 percent, at 8,432.61, according to preliminary tallies. Declines in Amazon.com and Microsoft helped pull the Nasdaq composite index down 4.58, or 0.33 percent, to 1,367.89, while the S&P 500 was off 2.81, or 0.31 percent, at 889.66.

The Russell 2000 Index which tracks the shares of smaller companies eked out a small gain.

Investors turned bearish after the U.S. military said warplanes from the U.S.-British coalition bombed Iraqi military command and communication targets today in southern Iraq. The attack was in retaliation for the downing of an unmanned American surveillance drone on Monday, the military said.

The official Iraqi News Agency, quoting a military spokesman, countered that a mosque had been hit and that three civilians were killed and 16 others wounded in the attack.

The rising tension with Iraq, a major Middle Eastern oil producer, along with the continued strike in Venezuela sent oil prices soaring. Oil prices for February delivery jumped 52 cents to $32.49, and some analysts predict that the price could hit $35 soon.

Still, analysts cautioned against reading too much into today's trading. Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee, noted that "when volume is light, it doesn't take much to move the market either way so I wouldn't read a lot into it."

Ralph Acampora of Prudential Securities in New York attributed this morning's gains to "a lack of sellers" and said trading continued a pattern of short-term rally followed by short-term decline.

"I think it is part of the market trying to bottom out in anticipation of a better year in 2003," he said.