Stocks traded briskly around the globe on news that Saddam was in custody, but the rally was short-lived on Wall Street. The major indexes shot up initially, but steadily retreated as investors refocused on the domestic picture. While the arrest was important news for U.S. forces in Iraq, analysts were not surprised by its limited effect on the markets.

"This is a geopolitical event that gave us a nice, short-term blip, but it wasn’t the kind of news that would drive us to even loftier levels," said Brian Williamson, an equity trader at the Boston Co. Asset Management. "The war is by no means over; this is just one piece of the puzzle, and not a cause for a huge end-of-war celebration."

According to preliminary calculations, the Dow Jones industrial average closed down 19.34, or 0.2 percent, at 10,022.82.

The broader gauges were also lower. The Nasdaq composite index was down 30.74, or 1.6 percent, at 1,918.26, after surging nearly 1 percent earlier in the day. The Standard & Poor’s 500 index was down 6.10, or 0.6 percent, at 1,068.04.

Overseas, Japan’s Nikkei stock average finished 3.2 percent higher today following news of the arrest. The reaction was more muted in Europe.

The U.S. dollar also saw a mid-session reversal, rising early in the day before plunging to a new low against the euro. Gold rose in Europe, but later declined in New York.

Saddam’s arrest could signal a turning point in Iraq, where U.S.-led forces have faced scattered resistance since troops entered Baghdad on April 9. But there were worrisome signs that the insurgents would continue their campaign, as a suicide bomber killed eight Iraqi policemen today at a station on Baghdad’s northern outskirts.

Analysts said Saddam’s capture may reduce resistance to U.S.-led troops in Iraq, which could lead to fewer disruptions in the nation’s oil fields. The capture also could help ease lingering concerns about the economic recovery and persuade investors to take on more risk.

"These psychological things, like the Dow crossing 10,000 and the capture of Saddam Hussein, are exactly the types of things we need to draw individual investors from the sidelines," said Jeffrey Kleintop, chief investment strategist for PNC Advisors of Philadelphia. "At a gut level, this is one more risk that’s out of the equation."