Crude futures rose sharply after the government reported a 1.6 million barrel drop in its oil inventories. The news created concerns about supply as the summer driving season begins. After rising as high as $51.60 a barrel during the session, crude futures settled at $50.98 a barrel, up $1.31, on the New York Mercantile Exchange.

The concerns over oil eclipsed a report from the Commerce Department that said orders for durable goods — big-ticket items designed to last at least three years — rose 1.9 percent in April, far more than the 1.5 percent analysts had expected. The report cheered investors worried about a slowdown in consumer demand.

"Oil is a concern, but the economy still appears to be in very good shape," said Brian Belski, market strategist at Piper Jaffray. "In stocks, what we're seeing is a fairly normal respite after last week's rally. I still think we're ready for a surprising summer rally ahead."

The Dow Jones industrial average fell 45.88, or 0.44 percent, to 10,457.80.

Broader stock indicators also gave ground. The Standard & Poor's 500 index lost 4.06, or 0.34 percent, to 1,190.01, and the Nasdaq composite index dropped 11.50, or 0.56 percent, to 2,050.12. The Nasdaq snapped an eight-session streak of gains.

Bond prices dropped after a strong buying spree dating to last week. The yield on the 10-year Treasury note rose to 4.07 percent from 4.03 percent late yesterday. The dollar was mixed against other major currencies, while gold prices rose.

New home sales hit an all-time high in April, but were less than Wall Street had expected. Annualized sales rose to 1.316 million homes, up from 1.313 in March but less than the 1.328 million analysts had forecast. The numbers were still an improvement, but also gave investors hope that the recent surge in housing sales would moderate, rather than nosedive.

Analysts noted that the drop in prices should be expected after last week, when each of the three major indexes rose more than 3 percent.

"When you're up this much and you see oil rise or something else happens that doesn't fit into this mental model of good news, you're going to take some chips off the table," said Jack Caffrey, equity strategist for J.P. Morgan Private Bank. "It's heretical to say it, but this kind of selling is healthy in the long run."

Dow component American International Group Inc. rose 28 cents to $54.08 despite media reports that New York Attorney General Eliot Spitzer was preparing a civil complaint against the embattled insurer. The complaint reportedly will allege the company used improper accounting and lied to investors and regulators.

Titan Corp. added 36 cents to $22.18 on a report it was in talks to be acquired by fellow defense contractor L-3 Communications Inc., with a sale price in the mid-$20 per share range. L-3 lost $2.69 to $67.35.

Visteon Corp. said that its former parent company, Ford Motor Co., will take over 24 of Visteon's auto parts manufacturing facilities in the United States and Mexico. The move is part of Visteon's restructuring efforts. Visteon soared 14.4 percent, or 90 cents, to $7.17, while Ford slipped 2 cents to $9.96.

Energy company Calpine Corp. surged 33.3 percent, or 66 cents, to $2.64 after it announced an effort to cut $200 million in costs each year and reduce its debt load by $3 billion at year's end.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where consolidated volume came to 1.82 billion shares, compared to 1.69 billion traded yesterday.

The Russell 2000 index of smaller companies was down 6.55, or 1.07 percent, at 606.40.

Overseas, Japan's Nikkei stock average fell 1.07 percent. In Europe, Britain's FTSE 100 was down 0.22 percent, France's CAC-40 slipped 0.04 percent for the session, and Germany's DAX index lost 0.16 percent.