Still, the market was remaining resilient, with blue-chip stocks paring losses in the afternoon after dropping as much as 139 points. Analysts were somewhat surprised by the comeback.

"It seems investors are comfortable in believing there is going to be a recovery that is sooner rather than later, even if the belief is misplaced," added Robert Harrington, co-head of listed block trading at UBS Warburg.

The Dow Jones industrial average closed down 25.84, or 0.3 percent, at 8,454.25, having fallen 22.90 yesterday.

The broader market finished mixed. The Nasdaq composite index rose 8.25, or 0.6 percent, to 1,472.56. The Standard & Poor's 500 dipped 0.62, or 0.1 percent, to 916.30. Declining issues narrowly outnumbered advancers on the New York Stock Exchange. Volume was moderate.

Several disconcerting reports weighed on the market. The Institute for Supply Management said the nation's manufacturing sector contracted for a second month, with its index falling to 45.4 in April from 46.2 in March. Analysts had forecast an April reading of 47.

The Commerce Department said construction spending declined 1 percent in March, the largest drop in seven months. Economists were predicting a small rise in overall construction spending.

"The manufacturing number is the most damaging," said Russ Koesterich, U.S. equity strategist at State Street Corp. "It's been well-documented consumers have been holding up the economy, but what's missing is a rebound in capital spending. Now this rebound may not occur."

A pair of Labor Department reports on jobless claims and productivity also hurt stocks.

The department said new claims for unemployment benefits dropped last week by a seasonally adjusted 13,000 to 448,000. Still, claims still came in at their second-highest level of this year.

And U.S. productivity improved in the first quarter, increasing at an annual rate of 1.6 percent. That was more than twice the 0.7 percent growth rate in the previous quarter, but was still lower than expectations.

Investors have been generally upbeat following a wave of better-than-expected earnings in recent weeks. But analysts say they're now looking for evidence that the economy is improving since many believe corporate profits came at the expense of layoffs and cutbacks.

Koesterich said he believes Wall Street's recent rally remains vulnerable because it came on earnings results that beat lowered expectations.

"Stocks are very extended," he said. "In some measure, it was a type of run that needs a normal digestion afterward. But until proven otherwise, this is still a bear-market rally."

Jeff Swensen, senior trader at John Hancock Funds, agreed.

"I would characterize this movement as drifting upward again within the confines of being stuck in a trading range," he said. "But there's going to be increasing scrutiny on our economy, and people are going to come to the conclusion that growth has been disappointing."

H&R Block fell 92 cents to $37.70 despite the tax preparer saying it expects 2003 earnings to be at the higher end of its previous estimates.