Overall, earnings have come in somewhat better than expected, but the market's reaction to good news has been muted at best. Some analysts attributed this to growing anxiety over the prospect of higher interest rates. And while economic numbers have been solid, the fact that inflation rose during 2004 at the fastest pace in four years only exacerbated rate concerns.

"I think the market is suffering from the fears of a possible hawkish Federal Reserve going forward," said Peter Cardillo, chief strategist at S.W. Bach & Co., who noted that other worries have also been baked into the market, including lofty oil prices ahead of what could be a problematic election in Iraq on Jan. 30. "There are several fear factors overshadowing the earnings season."

According to preliminary results, the Dow Jones industrial average fell 88.82, or 0.84 percent, to 10,539.97.

The broader gauges also fell. The Standard & Poor's 500 index slipped 11.35, or 0.95 percent, to 1,184.63. The Nasdaq composite index lost 32.45, or 1.54 percent, to 2,073.59.

Inflation rose at the fastest pace since 2000 last year as a surge in fuel bills sent the Consumer Price Index climbing 3.3 percent, the Labor Department reported. Consumer prices rose just 1.9 percent in 2003. There could be some relief ahead, however; lower energy prices in December led to a 0.1 percent drop in retail prices. Economists hope that 2005 will turn out to be a calmer year on the energy front.

In other economic news, the Commerce Department reported residential construction rose for a fourth straight year following a jump in construction of new homes in December.

Separately, the Labor Department announced new claims for unemployment benefits fell last week by the largest amount in more than three years, easing concerns raised by layoffs over the previous two weeks.

For most investors, the focus was on earnings, which were just not good enough to inspire buyers. One of the biggest let-downs came from JPMorgan Chase & Co., which missed estimates, causing the entire banking sector to sag.

"I think generally people were expecting that we'd have decent numbers from JPMorgan," said Som Dasgupta, managing director of trading at PNC Bank in Pittsburgh. "Nobody was expecting their profits to fall."

JPMorgan Chase shed 56 cents to $37.84 after saying its profits had fallen 11 percent in the fourth quarter. The bank blamed some of the shortfall on costs associated with the recent merger with Bank One Corp., which was completed last July.

The world's biggest automaker, General Motors Corp., lost 6 cents to $36.71 after reporting lower profits compared to the year-ago period, due in part to continuing struggles at its European operations.

Pfizer Inc., the world's largest drug company, declined 42 cents to $24.88 after reporting its net income more than quadrupled during the fourth quarter, driven by strong sales of cholesterol drug Lipitor. Earnings still missed analysts' forecasts after charges.

International Business Machines Corp., which announced profits that beat expectations after the close yesterday, was down $1.80 at $93.10. Revenues also topped forecasts, as IBM posted strong overseas sales on the back of a weak dollar. IBM's outlook for 2005 was positive, but company officials said retirement expenses would be higher than expected due to the currency impact.

On the Nasdaq market, Yahoo Inc. was down 73 cents at $36.45 after the company nearly tripled its fourth-quarter profits thanks to brisk online advertising. Both earnings and revenues topped Wall Street expectations, and executives raised the company's outlook for 2005.

The Russell 2000 index, which tracks smaller company stocks, was down 6.96, or 1.11 percent, at 617.91.

Decliners outnumbered advancing issues by nearly 2 to 1 on the New York Stock Exchange.