Investors found some encouragement after the Energy Department reported an increase in the nation's refining capacity, which had been severely disrupted by hurricanes Katrina and Rita. The nation's crude oil reserves also rose, sending oil prices lower. A barrel of light crude was quoted at $63.08, down $1.04, on the New York Mercantile Exchange.

But the chronic fretting over inflation dominated the markets after the Commerce Department said prices for imported goods rose 2.3 percent in August — the biggest increase in 15 years, and far greater than the 0.9 percent hike economists had forecast.

"We're definitely at a hard point here, with inflation and interest rates kind of looming over everything," said Bryan Piskorowski, market analyst at Wachovia Securities. "We have a market that's had a very rough October so far, and while you've got earnings coming up, that's not going to be the silver bullet for the market that it was in the second quarter."

The Dow Jones industrial average fell 0.32, nearly flat, to 10,216.59.

Broader stock indicators were mixed. The Standard & Poor's 500 index lost 0.84, or 0.07 percent, to 1,176.84, and the Nasdaq composite index climbed 9.75, or 0.48 percent, to 2,047.22.

Bonds continued their recent selloff, with the yield on the 10-year Treasury note rising to 4.47 percent from 4.45 percent late yesterday. The dollar advanced against most major currencies, while gold prices fell.

The news on import prices overshadowed a report on the nation's trade deficit, which rose to $59 billion in August, up from $58 billion the month before but less than economists had expected. Much of that increase can be attributed to higher oil prices.

Investors also were disappointed by the latest employment picture from the Labor Department. First-time jobless claims fell to 389,000 last week from 391,000 the week before, but economists had predicted 360,000 claims for the week. Continued fallout from Hurricane Katrina was blamed for the high number of people seeking unemployment benefits.

While the expected raft of corporate earnings reports due next week may not be a panacea for the stock market's troubles, strong fourth quarter profit forecasts could alleviate fears of a falloff in consumer spending heading into the holiday shopping season — and give stocks a much-needed boost.

"Earnings are the most likely catalyst in the short term," said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco. "The market is very concerned about inflation and the consumer rolling over because of higher prices. If the outlooks call for strong fourth-quarter sales, then you could see something good happen."

In company news, Google Inc. fell $3.53 to $297.44 on reports that the Internet company is in talks to acquire a sizable stake in America Online from Time Warner Inc., which rose 10 cents to $17.59. Cable operator Comcast Corp. was also reported to be involved in the talks, potentially leading to a split of AOL, with Google absorbing its Web sites and services and Comcast taking over its Internet service customers. Comcast lost 72 cents to $27.20.

Dow component McDonald's Corp. said it expects its third-quarter profits to beat Wall Street's forecasts due to strong sales of its new chicken sandwiches and stronger breakfast revenues. McDonald's climbed 38 cents to $32.05.

Refco Inc. tumbled $2.95, or 27 percent, to $7.90 in early trading before being halted by the New York Stock Exchange. The embattled commodities broker said it will freeze customer accounts in its unregulated capital markets subsidiary for 15 days because it may not have enough liquidity to service them.

Hospital operator HCA Inc. shed 16 cents to $46.53 after the company lowered its quarterly profit forecasts, which HCA blamed on costs related to the Gulf Coast hurricanes and an asset impairment charge. The disappointment was mitigated by the announcement of a $2.5 billion stock buyback program.

Declining issues outnumbered advancers by about 2 to 1 on the NYSE, where preliminary consolidated volume came to 2.35 billion shares, compared to 2.53 billion traded yesterday.

The Russell 2000 index of smaller companies rose 1.71, or 0.28 percent, to 623.28.

Overseas, Japan's Nikkei stock average fell 0.11 percent. In Europe, Britain's FTSE 100 tumbled 1.44 percent, France's CAC-40 dropped 0.99 percent for the session, and Germany's DAX index lost 0.64 percent.