Oil prices edged higher after after a report said that oil producers in the Gulf of Mexico continued to struggle to resume full operations after Hurricane Katrina.

An inventory report from the Energy Department showed the nation's oil and gasoline stockpiles fell considerably, although the losses were less than Wall Street expected. A barrel of light crude settled at $64.49, up 12 cents, on the New York Mercantile Exchange.

Yet with oil remaining in the mid-$60 per barrel range, investors were concerned that both corporate earnings and consumer spending would drop due to high energy costs. Investors also worried that the Federal Reserve would continue to raise interest rates at its Sept. 20 meeting. Despite Katrina's devastation and death toll, the harm to the U.S. economy was less than originally expected, and hopes of a halt in rate hikes dimmed.

"I think the Fed's in a box here, and they really don't have a choice but to raise rates," said Michael Chren, portfolio manager for the Allegiant Funds. "Rebuilding from the hurricane will be an economic positive next year, you have concerns about inflation, and you have the housing bubble. I don't think they can stop."

According to preliminary calculations, the Dow Jones industrial average fell 37.57, or 0.35 percent, to 10,595.93. The Dow had gained 186.13 in the previous two sessions.

Broader stock indicators also lost ground. The Standard & Poor's 500 index slid 4.68, or 0.38 percent, to 1,231.68, and the Nasdaq composite index dropped 6.00, or 0.28 percent, to 2,166.03.

Bonds held steady after two sessions of selling, with the yield on the 10-year Treasury note remaining at 4.14 percent from late yesterday. The dollar was mixed against most major currencies, while gold prices moved higher.

Investors' preoccupation with oil and interest rates caused them to look past a surprising drop in first-time jobless claims. The Labor Department reported the number of new unemployment claims fell to 319,000 last week, 1,000 less than the prior week. More claims, however, are expected in the coming weeks from workers displaced by the Gulf Coast disaster.

"The economic data over the next several weeks are going to be difficult to interpret, and it'll be interesting to see how the market reacts," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "The rally the past few days shows investors are willing to look past this period of uncertainty toward a pickup in growth in early 2006. It's a pretty optimistic viewpoint and that could change when the data comes in."

In company news, eBay Inc. shares fell $1.53 to $38.93 after newspaper reports had the online auction company in talks to acquire Swedish firm Skype Technologies SA, which creates software to allow free phone calls over the Internet, for $2 billion to $3 billion.

The Wall Street Journal reported that Ford Motor Co. could agree to sell its Hertz rental car division as early as tomorrow, with a group of private investors reportedly paying up to $6 billion for the unit. Ford stock lost 21 cents to $9.92.

Sears Holdings Corp. shares tumbled $7.04 to $127.81 after the company's quarterly earnings missed Wall Street profit forecasts by 38 cents per share, due in part to restructuring costs. The company also named Alywin Lewis as its new chief executive officer, replacing Alan Lacy, who will remain vice chairman and a director of the retailer.

News Corp. said it will spend about $650 million in cash to acquire privately held IGN Entertainment Inc., creator of popular video game Web sites. The purchase will bolster Fox Interactive's network of sites. News Corp. dropped 5 cents to $17.27.

Declining issues outnumbered advancers by more than 5 to 3 on the New York Stock Exchange, where volume came to 1.45 billion shares, compared with 1.5 billion yesterday.

The Russell 2000 index of smaller companies fell 3.85, or 0.57 percent, to 673.47.

Overseas, Japan's Nikkei stock average fell 0.58 percent. In Europe, Britain's FTSE 100 was down 0.47 percent, France's CAC-40 lost 0.45 percent for the session, and Germany's DAX index rose 0.09 percent.