While the warnings raised fears that investors had misread signs of economic recovery, some pullback is to be expected following more than three months of rallies on Wall Street.

Most market watchers remain optimistic about Wall Street's long-term prospects, saying the latest rally has more staying power than previous advances that fizzled in the bear market.

"Right now, indications are that this could be more than a bear market rally. The jury is still out, but I think for the bulls there have been some wins, (like) the S&P 500 taking over the 1,000 area," said Todd Salamone, director of trading at Schaeffer's Investment Research in Cincinnati.

The Dow Jones industrial average closed down 29.22, or 0.3 percent, at 9,293.80, according to preliminary calculations. The declined followed a two-day gain of 205.90, nearly all of which resulted from a big rally on Monday.

The market's broader gauges were mixed. The tech-focused Nasdaq composite index rose 8.79, or 0.5 percent, to 1,677.23.

The Standard & Poor's 500 index declined 1.57, or 0.2 percent, to 1,010.09, having finished Monday at its highest close since June 19, 2002, when it stood at 1,019.99.

By the end of yesterday's session, the Dow had risen 24 percent from where it stood on March 11, when the heavy buying began. Meanwhile, the Nasdaq has surged 31 percent and the S&P 500 26 percent since then.

Technology has been the biggest winner, which analysts attribute to signs that capital spending on tech products is increasing. Many market experts believe that a rebound in the market and the overall economy is contingent on a resurgence in tech spending.

"There is an increasing amount of confidence that we are going to get the recovery we have been hoping for, for the last year. There are some indications that tech spending by small- and intermediate-sized companies is starting to pick up," said Matt Brown, head of equity management at Wilmington Trust.

Brokerage house upgrades of semiconductor firms also helped the tech sector advance today.

PMC-Sierra rose 93 cents to $13.33, Vitesse Semiconductor advanced 56 cents to $5.62, and Applied Micro Circuits inched up 5 cents to $6.27. Lehman Brothers raised its rating on the three chip makers to "equal-weight" from "underweight."

But blue chip issues fell on disappointing earnings news.

Dow industrial Kodak dropped $3.22 to $28.77 after cutting its second-quarter earnings outlook.

Clorox fell $2.96 to $42.29 after reducing its quarterly and annual profit estimates.

Declining issues outnumbered advancers 9 to 5 on the New York Stock Exchange. Volume was light.