Continuing a now weeks-long pattern, Wall Street fell on good economic news that it believed would motivate the Fed to raise rates. The Labor Department reported the number of people filing new claims for unemployment insurance fell last week to the lowest level since October 2000, a far greater decline than anticipated.

The drop added to the market's suspense about the monthly jobs report to be released today.

"The unemployment claims are fueling speculation that tomorrow's numbers may be better than expected, so that raises the question about when the Fed will pull the trigger on rates," said Peter Cardillo of S.W. Bach & Co.

Contributing to investors' anxiety, Greenspan told a banking conference yesterday the federal budget deficit could represent a major obstacle to long-term economic stability. The deficit will amount to 4.25 percent of the total economy this year.

In addition, unrest in the Middle East has added concerns that terrorist acts could cause disruption in oil-producing countries. Oil is now trading at its highest level since the run-up to the Gulf War in 1990, and analysts say it could easily top $40 a barrel.

"If we could attribute all of the stock market weakness simply to concerns about interest rates, then it would be an overreaction, but it's not the only factor," said Susan L. Malley of Malley Associates Capital Management.