With the Federal Reserve meeting Dec. 14, many investors felt that the weakening dollar — which failed to gain much ground against other currencies today — would lead to substantially higher interest rates as the threat of inflation grows.

Wall Street also bid retail stocks lower despite improved sales for most retailers over the Thanksgiving weekend. A warning from Wal-Mart Stores Inc., which said its sales were lower than expected, led to selling across the sector. A strong showing in sales of electronics kept tech stocks slightly higher for the session.

"What we're seeing here is investors realizing that the falling dollar could prompt inflation, and that could prompt a much stronger Federal Reserve response," said Peter Cardillo, with S.W. Bach & Co.

According to preliminary calculations, the Dow Jones industrial average fell 46.33, or 0.44 percent, to 10,475.90. The Dow had been down more than 105 points earlier in the session.

The Standard & Poor's 500 index was down 4.08, or 0.35 percent, at 1,178.57, and the Nasdaq composite index gained 4.90, or 0.23 percent, to 2,106.87.

Even stabilizing crude oil futures failed to assuage investors' concerns. A barrel of light crude settled at $49.76, up 32 cents, on the New York Mercantile Exchange.

Instead, Wall Street was focused on the dollar, prompted by Fed Chairman Alan Green span's warning earlier this month that foreign investors could reduce their U.S. bond holdings should the dollar remain weak. Greenspan blamed a spiraling trade deficit and federal budget deficits for the reactions.

The selloff on Wall Street also was prompted by a drop in the government bond market, where there were fears of foreign bondholders abandoning Treasury bills as the dollar continues to weaken.

Ten-year treasury notes fell 71.875 cents to $99.34375, with the yield rising from 4.23 percent to 4.33 percent. At its next meeting, the Fed is widely expected to raise the benchmark interest rate by a quarter percentage point to 2.25 percent.

Many investors held out hope for better economic news this week, with a reading of the nation's gross domestic product coming tomorrow and the Labor Department's jobs creation report on Friday.

Wal-Mart's sales suffered because the discount retail giant offered fewer discounts than many of its competitors, and investors were not pleased with the results. Wal-Mart tumbled $2.17 to $53.15.

Other retailers fared better in holiday sales, but many remained under pressure due to Wal-Mart's report. Target Corp. slipped 31 cents to $51.90, J.C. Penney & Co. dropped 65 cents to $39.91, Sears Roebuck & Co. lost $1.88 to $52.42, and Kmart Holding Corp. fell $5.38 to $102.01.

Apple Computer Inc. surged $3.89, or 6.03 percent, to $68.44 after Merrill Lynch analysts said holiday sales of its iPod music player will give the computer and electronics company a strong boost. IBM Corp. and Sony Corp. have collaborated on a new semiconductor specifically designed for home entertainment products, according to The Wall Street Journal. IBM rose 78 cents to $95.50, while Sony gained 40 cents to $36.37.

Declining issues outnumbered advancers by nearly 5 to 4 on the New York Stock Exchange, where volume was moderate.