The Spanish government initially blamed Basque separatists for the worst terrorist strike in the nation's history. But police later found a van with detonators and an audiotape of Quranic verses near the site, and a London-based Arabic newspaper said it had received a claim of responsibility in the name of al-Qaida. The late-day development caused U.S. markets to shudder.

The Dow Jones industrial average sank 168.51, or 1.6 percent, to 10,128.38, leaving it down more than 3 percent for the year. Since Monday, the Dow has lost 467.17 points. The broader market also dropped sharply.

Yesterday's trading left the three indexes at their lowest point since mid-December.

There was some positive economic news. The Commerce Department reported a 0.6 percent rise in sales at the nation's retailers in February, matching economists' expectations.

Separately, the Labor Department reported new claims for jobless benefits dropped last week by a seasonally adjusted 6,000 to 341,000, beating forecasts. Although the pace of layoffs is slowing, companies don't seem to be in a hurry to hire new workers, which has concerned economists.

Federal Reserve Chairman Alan Greenspan told a congressional committee yesterday he remains confident employment will increase as the economic recovery continues.