Best Buy's profits, which rose 25 percent from a year ago, missed Wall Street's forecasts, and the company said the current quarter also would miss targets, heightening investors' concerns that high gasoline and heating oil prices will hurt consumers.

A drop in crude oil didn't help the stock market. A barrel of light crude closed at $63.11, down 23 cents, on the New York Mercantile Exchange.

The retail news also overshadowed a slightly better-than-expected report on wholesale inflation. The Labor Department's Producer Price Index rose 0.6 percent in August, less than the 0.7 percent expected. With costly fuel prices removed, "core" PPI was flat for the month.

"You have some good economic data, but I think everyone is still trying to figure out what the post-Hurricane Katrina environment is like," said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. "For now, the fundamentals look strong, but that could change in the next few months as the distortions caused by Katrina come through in the economic data, and that's what has people holding off."

The Dow Jones industrial average fell 85.50, or 0.8 percent, to 10,597.44.

Broader stock indicators also lost ground. The Standard & Poor's 500 index dropped 9.36, or 0.75 percent, to 1,231.20, and the Nasdaq composite index slid 11.08, or 0.51 percent, to 2,171.75.

Bonds recovered after the previous session's selloff, with the yield on the 10-year Treasury note falling to 4.13 percent from 4.17 percent late yesterday. The dollar was narrowly mixed against other major currencies, while gold prices fell.

Even as investors focused on oil and consumer spending, the latest economic data remained surprisingly robust. Along with the lower PPI report, the Commerce Department reported that the nation's trade deficit fell to $57.9 billion in July from $59.5 billion in June despite higher import prices for crude oil.

Yet the results from Best Buy, the nation's largest electronics retailer and a Wall Street favorite, cast a pall on the markets. Best Buy tumbled $5.57, or 11 percent, to $44.79, while rival Circuit City Stores Inc. lost 46 cents to $16.46 and RadioShack Corp. slid 53 cents to $25.68.

"It's hard to blame everything on just one company, but Best Buy's earnings, and some disappointing commentary from the company, really got people questioning the impact of oil on consumer spending," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. "And with a lot of economic data and the Federal Reserve meeting next week, you're going to find people hesitant to make any big moves."

The Federal Reserve's Open Market Committee meets Sept. 20, and despite hopes that the Fed would pause in its steady stream of interest rate hikes, decent economic data in the wake of Katrina has led Wall Street to expect another quarter percentage point rate hike.

In other news, mobile phone maker Nokia Corp. gained 74 cents to $16.81 after the company said better-than-expected sales would result in higher revenues and earnings for the third quarter. The company also credited cost controls for the improved forecasts.

A day after announcing a $2.6 billion purchase of Internet telephony firm Skype SA, eBay Inc. was downgraded to "sector performer" from "sector outperformer" by CIBC World Markets. Analysts said the online auctioneer would see some short-term problems integrating Skype into its businesses. eBay dropped 66 cents to $38.28.

The New York Post reported that Viacom Inc. and Comcast Corp. would announce a joint venture to create several new cable television networks, an e-commerce business and video-on-demand offerings. Viacom fell 36 cents to $34.41, while Comcast slipped 11 cents to $29.88.

Declining issues outnumbered advancers by nearly 5 to 2 on the New York Stock Exchange, where preliminary consolidated volume came to 2.08 billion shares, compared with 1.93 billion yesterday.

The Russell 2000 index of smaller companies fell 7.69, or 1.13 percent, to 673.13.

Overseas, Japan's Nikkei stock average rose 0.04 percent. In Europe, Britain's FTSE 100 closed down 0.69 percent, France's CAC-40 fell 0.86 percent for the session, and Germany's DAX index tumbled 1.77 percent.