"This market is extremely skittish today. We're swinging all over the place. I don't really think people are sure whether to focus on earnings or the economy," said Todd Clark, head of listed equity trading at Wells Fargo Securities.

The Dow gave up an early gain of 158 points to close down 37.80, or 0.5 percent, at 7,717.81, after dropping 183 points Wednesday.

The broader market also finished lower. The Nasdaq composite index fell 20.98, or 1.8 percent, to 1,166.32. It was the tech-dominated index's lowest closed since Sept. 12, 1996, when it closed at 1,165.81.

The Standard & Poor's 500 index dropped 8.91, or 1.1 percent, to 819.00.

The Institute for Supply Management reported today its monthly non-manufacturing index rose in September to 53.9 from 50.9 in August. The figure, which beat analysts' expectations, offered some hope that the economic recovery was gaining strength.

In another report, the Commerce Department reported U.S. factory orders were flat in August. The result was also better than the decline that analysts forecast.

But the Labor Department reported that new jobless claims rose by a seasonally adjusted 5,000 to 417,000 for the week ending Sept. 28. The increase was slightly larger than analysts forecast and followed a drop of 18,000 in the prior week.

The Dow registered its highest gains following the release of the services sector and the factory orders reports before giving up them up later.

"Taken together, the reports show that profits are expanding. But we're still forecasting that this will be the softest profits recovery from the deepest recession since World War II," said Charles Reinhard, senior U.S. investment strategist at Lehman Brothers.

Charles H. Blood Jr., senior financial markets analyst at Brown Brothers Harriman & Co., said the services sector report appeared to offer the best news of the day, because "it sort of lays to rest, momentarily at least, that the economy isn't tripping into a serious decline."

Still, "it's not strong enough in the whole flow of reports to show that a real recovery is on the way," he said.

Investors have been jittery in recent weeks amid continuing concerns about earnings and tensions with Iraq. Prior to Thursday, the Dow had eight straight triple-digit moves, most of them downward, as investors alternated between heavy selling and some bargain-hunting.

"There's nothing to really catalyze the bulls," Blood said. "It's become clear that the economy has really slowed, so people are now looking for signs of a reversal.

"But at least so far, the signs haven't appeared yet," he said.

Advanced Micro Devices fell $1.74 to $3.63 after it warned that third-quarter revenue would fall below expectations, citing weak personal computer sales.

Bank of New York declined $2.97 to $23.79 after reporting that it would take third-quarter charges of $260 million in part to increase its loan loss provision.

And Martha Stewart Living Omnimedia dropped 60 cents to $6.20 after its embattled namesake and CEO, under investigation by the Justice Department for her sale of ImClone Systems Inc. stock, resigned from the board of the New York Stock Exchange.

Gainers included Dupont, which rose 43 cents to $37.74, after the chemical company raised its third-quarter earnings outlook, citing a lower-than-expected tax bill.

Declining issues outnumbered advancers about 4 to 3 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, fell 3.37, or 0.9 percent, to 356.85.

Overseas, Japan's Nikkei stock average finished lower 1.3 percent. In Europe, France's CAC-40 fell 2.7 percent, Britain's FTSE 100 dropped 0.6 percent, and Germany's DAX index was down 3.9 percent.