Analysts said the lackluster trading was characteristic of the first part of December, when a lull often precedes an end-of-year rally. But there's no guarantee the market will benefit from the so-called Santa Claus effect this year because stocks already have posted a significant advance over the last two months and now appear somewhat overextended.

Wall Street "needs something to boost things along," said Larry Wachtel, market analyst at Wachovia Securities. "The probable deal ... is helpful ... but there's nothing in the way of dramatic elements to drive you forward. I don't see a lot of selling pressure. I don't see a reason for the market to dump. But I just don't see anything to drive it dramatically forward."

According to preliminary results, the Dow Jones industrial average slid 106.48, or 1.01 percent, to 10,440.58.

The broader gauges also skidded lower. The Standard & Poor's 500 index shed 13.18, or 1.11 percent, to 1,177.07. The Nasdaq composite index was down 36.60, or 1.70 percent, at 2,114.65.

Oil prices hit a four-month low despite supply fears prompted by an attack on a U.S. Consulate in Saudi Arabia and unrest in Nigeria. Futures of light, sweet crude declined $1.52 to close at $41.46 per barrel on the New York Mercantile Exchange. Meanwhile, the dollar struck a new low against the euro.

Traders weren't overly concerned by the slide in equities, predicting that if oil continues to decline, buyers will return to Wall Street. In addition, with many professional investors such as mutual fund managers logging gains for the year, there's less threat of a more significant sell-off.

"I am not too concerned right now. I think the character of the market is in place, at least until the end of the year," said Michael Murphy, head trader at Wachovia Securities in Baltimore.

The government reported that worker productivity grew at a 1.8 percent annual rate in the third quarter, the slowest pace in nearly two years. Some saw the deceleration as a sign that employers have squeezed as many efficiencies out of their existing workers as they can, and may finally increase hiring to meet customer demand.

The Labor Department's latest snapshot of productivity — the amount an employee produces for every hour of work — was lower than previously thought, and marked a sharp pullback from the 3.9 percent pace logged in the second quarter.