Scaled-back profit forecasts for several high-profile companies discouraged investors, stifling the market's ability to sustain its rally and leading portfolio managers to dump losing stocks, analysts said. Lackluster economic news also helped depress the market.

"Looking back at those two days of gains, no brave new world was created. We still had concerns about a war with Iraq, we still had earnings warnings," said Bryan Piskorowski, market commentator at Prudential Securities.

"So once the bargain-hunting stopped, we were back to where we were," he said. "Then (the declines) begin to snowball and no one is willing to be a hero," he said.

The Dow fell 295.67, or 3.7 percent, to close at 7,701.45, according to preliminary calculations. The drop all but erased the average's 314-point gain over the previous two sessions.

Broader stock indicators also finished lower. The Nasdaq composite index fell 22.53, or 1.9 percent, to 1,199.08. The Standard & Poor's 500 index fell 27.59, or 3.2 percent, to 827.36.

The three major market gauges all finished the week lower for a fifth straight week, a distinction not seen since the five weeks ending May 24 to June 21. For the week, the Dow lost 3.6 percent, the Nasdaq declined 1.8 percent, and the S&P fell 2.1 percent.

Analysts said some of today's declines may be a result of "window-dressing," or an attempt by institutional investors to make their holdings look as good as possible at a quarter's end. Two economic reports released today offered little reassurance of a strengthening economy and added to the losses.

"The fact that you have a disproportionate number of companies coming up with negative pre-announcements not anticipated by analysts prior to the last couple of weeks makes it a much more difficult environment," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

"What I'm seeing here is, when we get to the bottoms again. ... there is a tendency for the market to recover somewhat, but there is a lack of traction underneath because there's no follow-through," he said.

The Commerce Department reported that the economy grew at an annual rate of 1.3 percent in the spring, slightly better than previous estimates but significantly weaker than in the first quarter of the year.

In addition, a University of Michigan survey released today showed consumer confidence declining during September, according to Dow Jones News Service.

The reports, while not a surprise, confirmed doubts among investors that the economic recovery is shaky, analysts said.

"None of the recent data ... suggests that we have a strong economic turning point here," said Chris Wolfe, equity strategist for the J.P. Morgan private bank. "The presumption (among investors) is that consumer spending is set to slow down."

"Repeated shocks to the U.S. economy are delaying the onset of a full-fledged recovery," Merrill Lynch & Co.'s chief economist, Bruce Steinberg, wrote in a note to clients.

Steinberg cut his forecast for S&P 500 earnings to $45 from $46 for this year and to $52 from $55 for 2003 based on expectations for economic growth at

2.5 percent in the next two quarters. He had expected growth of 3.5 percent and 4 percent in the last quarter of 2002 and first quarter of 2003.

Steinberg blamed stock-market declines and the threat of war with Iraq for low investor confidence and higher oil prices, which he said will crimp economic growth over the next two quarters.

Investors pulled money out of stock mutual funds for the sixth week in a row, with $4.1 billion more flowing out of equity funds than was added during the week ended Wednesday, according to AMG Data Services.

General Electric fell $1.92 to $24.47 after a pair of analysts downgraded the company's stock.

Philip Morris fell $4.87 to $37.86, after it warned late yesterday that its full-year earnings would fall short of expectations.

Delta Air Lines shares fell $2.81 to $8.69.

SBC Communications fell $1.75 to $20.15 following the company's announcement that it will cut an additional 11,000 jobs and slash capital spending.

Citigroup fell 49 cents to $29.02 after reports that it is trying to reach a settlement with federal regulators that would end investigations of its stock research operations.

Declining issues outnumbered advancers 10 to 3 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, fell 8.92 points, or 2.4 percent, to 361.77.