The decline did not alarm analysts, as trading volume was lower ahead of the Independence Day weekend. After the market's muted reaction to a widely expected rise in interest rates yesterday, many investors are looking ahead to the government's monthly labor report, due tomorrow.

"I would not read too much into this weakness today, because there's a real lack of engagement overall," said Brian G. Belski, market strategist at Piper Jaffray. "I don't think there's any sense of urgency right now, today, ahead of the employment report, post the interest rate decision and in a holiday week, to put a lot of new money to work."

According to preliminary results, the Dow closed down 101.32, or 1 percent, at 10,334.16.

The broader gauges were also lower. The Nasdaq composite index sank 32.24, or 1.6 percent, to 2,015.55, largely on weakness in the semiconductor sector. Standard & Poor's 500 index fell 11.86, or 1 percent, to 1,128.98.

The Labor Department found a slight rise in the number of people who signed up for jobless benefits last week; economists had forecast a decrease.

And the Institute for Supply Management said its manufacturing index declined to 61.1 in June, down from 62.8 in May. That was somewhat lower than the 61.5 forecast by analysts. Still, the gauge has been above 50 since June of last year, indicating that manufacturing activity is still in an expansion.

Adding to inflationary worries today, August crude oil futures surged 3 percent intraday, though at the end of the session they were down 10 cents at $38.64 a barrel. That, combined with the less-than-stellar economic news and a handful of brokerage downgrades on key stocks, contributed to the day's profit-taking.

Yahoo declined $2.10 to $34.30 after Smith Barney cut its rating to a "hold" from a "buy," saying the stock had gotten too expensive, having climbed 63 percent since mid-March. Still, analyst Lanny Baker raised his price target to $36.50, noting that Yahoo is benefiting from strong Internet advertising trends.

Boeing Co. lost $1.19 to $49.90 after Merrill Lynch & Co. cut its rating to a "neutral," citing risks surrounding the recovery of the commercial airline sector.

Time Warner Inc. was down 17 cents at $17.41 on news it has offered $5 billion for film studio Metro-Goldwyn-Mayer, sparking a bidding war with Sony Corp. MGM, up 56 cents at $12.66, has been in talks with Sony for months, but the deal has snagged on financing terms. Sony added 21 cents to $38.26.