The news erased modest gains the market had made following better-than-expected earnings from Home Depot. Analysts said investors were playing it safe and choosing to cash in profits from several weeks of gains.

The Dow Jones industrial average closed down 2.03, or 0.02 percent, at 8,491.36, having declined 185 points in the previous session. Earlier in the day, the blue chips gained as much as 56 points, although they also recovered ground after hitting an intraday loss of 76 points.

The broader market also finished slightly lower. The Nasdaq composite index dropped 1.68, or 0.1 percent, to 1,491.09. The Standard & Poor's 500 index fell 1.04, or 0.1 percent, to 919.73.

Canadian officials said a cow in Alberta was diagnosed with mad cow disease. U.S. officials immediately banned imports of cattle, beef, beef-based products and animal feed from Canada, although Agriculture Secretary Ann Veneman said the situation "appears to be an isolated case."

"The news is prompting worries about a mad cow infestation and the probability it gets here," said Tony Cecin, director of institutional trading at US Bancorp Piper Jaffray. "This just gives them (stock market investors) something else to worry about."

Shares of beef producers and retailers sagged on the news. Dow component McDonald's fell $1.21 to $16.95, while Tyson Foods dropped 46 cents to $9.01 and Outback Steakhouse lost $1.16 to $35.46.

Meanwhile, the U.S. government increased the terrorism alert from yellow to orange, indicating a higher risk of attacks here amid a wave of terrorist attacks overseas.

Investors in recent days have cashed in profits on fears of a tepid economic recovery and concerns that a weak dollar will limit foreign investment. Analysts say stocks will likely trade in a range until investors see clear evidence of economic improvement.

"When doubts creep in, like a possible cessation of a strong dollar policy, you see a dramatic reaction. That means there's a lot of doubt out there for the ability of this market to keep moving up," said Brian Pears, head equity trader at Victory Capital Management.

Dow component Home Depot climbed $2.60, or 9.3 percent, to $30.67 after the nation's largest home improvement chain reported quarterly profits that beat Wall Street's estimates by 2 cents a share.

"Home Depot is a company that you can use as a proxy for consumer sentiment," Pears said. "So it helps to see a major stock like this move."

Nordstrom rose $1.39 to $17.25 after the retailer reported quarterly profits that beat estimates.

Losers included the drug sector, which declined for a second day after a Supreme Court ruling that could force pharmaceutical companies to lower prices in Maine. Merck fell $1.66 to $54.99, while Pfizer dropped 70 cents to $31.10 and Bristol-Myers Squibb lost $1.10 to $23.35.