With Wall Street concerned about inflation and the Fed's interest rate policy, the Commerce Department's report showing a surprise jump in new home sales last month assuaged fears that higher rates would curtail consumers' willingness to buy homes. And oil prices also fell one day after reaching the $56 level, further easing fears that inflation might take hold.

But a drop in consumer confidence to its lowest level in five months worried investors, and many remained on the sidelines in the hopes that the Fed next week could provide clarity on the economy.

"In a way, this week is kind of a wash, because everyone is going to be holding their breath for the Fed," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers in Boston. "But really, earnings are going in pretty strong and the economy is still growing and moving in the right direction, and stocks look pretty cheap right now."

The Dow Jones industrial average fell 91.34, or 0.9 percent, to 10,151.13.

Broader stock indicators also moved lower. The Standard & Poor's 500 index was down 10.36, or 0.9 percent, at 1,151.74, and the Nasdaq composite index lost 23.34, or 1.2 percent, to 1,927.44.

Oil prices retreated for a second session, with a barrel of light crude settling at $54.20, down 37 cents, on the New York Mercantile Exchange. The bond market fell alongside stocks, with the yield on the 10-year Treasury note rising to 4.27 percent from 4.25 percent late yesterday. The dollar was mostly higher other major currencies, and gold prices moved higher.

The markets received some support from home builder stocks, which rose after the Commerce Department reported a surprising jump in new home sales for March. New home sales rose to an annualized rate of 1.43 million, up from 1.23 million in February. Wall Street was expecting sales to fall to 1.19 million.

The housing news helped overcome a disappointing reading on consumer confidence, which Wall Street feared would result in lower consumer spending. The Conference Board's consumer confidence index fell to 97.7 in April from 103 in March. The reading was slightly lower than the 98 economists expected.

"We're in a very day-to-day, news-driven market," said Scott Wren, equity strategist for A.G. Edwards & Sons. "One day we're worrying about inflation. The next day we're worring about slower growth. The next day it's good earnings. In general, there's more good news than bad news, but we're paying more attention to the negative stuff for now."

In earnings news, DuPont Co. said its quarterly profit rose sharply despite increased materials costs, but the results still missed Wall Street's profit forecasts by 5 cents per share. The company's disappointing outlook for the rest of 2005 also weighed on the stock, which fell $1.55 to $47.03.

Lockheed Martin Corp. rose 9 cents to $59.84 even after the aerospace and defense contractor said quarterly profits rose 27 percent from a year ago. The company also raised its profit forecasts for the rest of the year, citing strong growth in its space division as well as its recently acquired subsidiaries.

Martha Stewart Omnimedia Inc. said its revenues dropped 13 percent in the quarter but that its losses narrowed from a year ago. However, new television shows in the works, along with a line of Martha Stewart home videos and improvements in publishing, will lead to improvement in future quarters, management said. MSO gained 41 cents to $20.75 on the news.

Shares of Genentech Inc. climbed $3.12 to $72.55 after the biotech company said the latest studies of its breast cancer drug Herceptin were halted early because the drug showed great promise in halting early stage cancers.

IBM Corp. added 82 cents to $75.43 after the company announced a $5 billion stock buyback, the largest in the company's history. The computer and software maker also increased its quarterly dividend by 2 cents to 20 cents per share.

Declining issues outnumbered advancers by nearly 5 to 2 on the New York Stock Exchange, where preliminary consolidated volume came to 1.96 billion shares, compared with 1.8 billion shares at the same point yesterday.

The Russell 2000 index of smaller companies was down 8.78, or 1.5 percent, at 587.66.