Analysts said investors are concerned that the war will last for several months rather than a few weeks. Investors believe that the longer the fighting lasts, the more conservative businesses and consumers will become in their spending, a threat to an already troubled economy.

The market's glum mood was also due to developments in the war over the weekend, including a suicide attack that killed four American soldiers on Saturday.

"It is just hard to find buyers. Not a lot of people are willing to step up to the plate," said Bryan Piskorowski, market commentator for Prudential Securities. "For the most part, it is all Iraq all the time, but you also have soft economic data ahead of quarterly earnings warnings. That triumvirate is hard to overcome here."

In late afternoon trading, the Dow Jones industrial average was down 81.72, or 1 percent, at 8,064.05, having dropped as much as 216.46 earlier. The Dow was adding to its three-day loss of 134.46 and last week's decline of 4.4 percent.

Analysts attributed the Dow's ability to cut its losses to late-day bargain hunting, rather than confidence in the economy or the market itself.

The broader market was also sharply lower. The Nasdaq composite index sank 14.80, or 1.1 percent, to 1,354.80. The Standard & Poor's 500 index fell 6.52, or 0.8 percent, to 856.98.

"Now most (investors) understand that the war will be longer than expected and investors continue to be noncommittal," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif.

Today's economic news was a big blow to the market. The Purchasing Management Association of Chicago reported that its index of business activity fell to 48.4 in March on a seasonally adjusted basis from 54.9 in February. Not only was the reading much weaker than economists predicted, but because it was below 50, it indicated a contraction in business activity.

The index is considered a harbinger of the Institute for Supply Management's national survey on manufacturing, due to be released tomorrow.

Analysts said investors' fears about the wobbly economy stand to deepen as companies begin revising their first-quarter earnings estimates, with many bound to cut their outlooks.

Retailers were among the market's losers, stumbling on an array of disappointing news. Nordstrom fell 90 cents to $16.42 after issuing a first-quarter profit warning, while Federated Department Stores slipped 14 cents to $28.38 after saying March sales will miss analysts' expectations. And, Wal-Mart fell 20 cents to $52.93 after warning that its March sales will be at the low end of estimates.

Bad news also hurt Altria, down $2.66 at $29.47 and one of Wall Street's biggest decliners. The company's Philip Morris USA unit said it can't raise the money to post a $12 billion court-ordered bond needed to appeal an Illinois tobacco case. Standard & Poor's Corp. said that if the bond requirement isn't drastically reduced, Philip Morris "might have to consider bankruptcy as an option."

Wall Street's losses were widespread, an indication that investors are extremely nervous. IBM fell $1.95 to $78.90, Boeing tumbled 61 cents to $25.49 and American Express declined 67 cents to $33.55.

Brokerage house downgrades gave investors yet another reason to sell individual stocks. Taiwan Semiconductor fell 50 cents to $6.90 after Deutsche Securities lowered its recommendation on the chip maker to "sell" from "hold."

Declining issues outnumbered advancers 4 to 3 on the New York Stock Exchange. Trading was light as it has been for weeks with volume at 999.01 million shares, compared with 887.84 million at the same point Friday.

The Russell 2000 index, which tracks smaller company stocks, fell 0.67, or 0.2 percent, to 368.03.