Crude futures surged as refinery recovery remained sluggish on the Gulf Coast and the government announced a sharp drawdown in the nation's oil reserves. A barrel of light crude settled at $65.09, up $1.98 on the New York Mercantile Exchange.

Wall Street also was concerned with nearly flat industrial output figures from the Federal Reserve — due to the approach of Hurricane Katrina — and a 2.1 percent drop in retail sales. However, the Commerce Department noted that with auto sales removed, other retail sales rose 1 percent, though much of that was due to a rise in gasoline prices.

The market's losses were magnified due to light trading volume, as many investors simply held off making large bets and hoped the Fed, which meets Tuesday, could shed more light on the nation's economic situation.

"There seems to be a lot of uncertainty about what the Fed is going to say," said Scott Wren, equity strategist for A.G. Edwards & Sons. "It seems a little early, given the meeting is next week, but I do think people are just waiting around for better news."

The tech-focused Nasdaq composite index fell 22.42, or 1.03 percent, to 2,149.33.

Other stock indicators also fell. The Dow Jones industrial average dropped 52.54, or 0.5 percent, to 10,544.90, while the Standard & Poor's 500 index slid 4.04, or 0.33 percent, to 1,227.16.

Bonds edged lower, with the yield on the 10-year Treasury note rising to 4.16 percent from 4.13 percent yesterday. The U.S. dollar was mixed against other major currencies in European trading. Gold prices were higher.

After a surprising runup in stock prices in the week after Katrina, bolstered by data suggesting that the hurricane's economic impact would be limited, investors have become tentative — especially as oil prices have started climbing once again.

"I think the market has managed the inevitable profit-taking very well, but there's still a lot of skepticism out there," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisers. "I think the market's overall tone is positive, but there's a very uneasy truce right now between the positives and negatives, and we'll have to see how things shape up in the coming weeks."

In the battered technology sector, which had seen a sharp rise over the past two weeks, Baidu.com Inc. tumbled fell 25 percent, or $28.84, to $84.75 after Goldman Sachs and Piper Jaffray each initiated coverage of the stock with "underperform" ratings. Piper Jaffray said the stock's valuation is "off the chart." Other Internet stocks also fell, with Google Inc. dropping $8.68 to $303 and Yahoo! Inc. losing 50 cents to $33.80.

The losses were mitigated somewhat by a strong report from Lehman Brothers Holdings Inc., which rose 13 cents to $112.41 after having climbed more than 2 percent earlier in the session. The Wall Street firm reported a 77 percent jump in third-quarter profits, easily surpassing Wall Street's forecasts due to record revenues in its investment banking and investment management segments. That, analysts said, was a bullish sign for the overall market.

"What we're seeing from Lehman is that market conditions improved through the summer, and that conditions are likely to continue improving," Johnson said. "That's showing up in the earnings and in the detail of their reports."

Northwest Airlines Corp. and Delta Air Lines Inc. both filed for bankruptcy protection after the session. Northwest had gained 30 cents to $1.87 as the company's board of directors met to consider the Chapter 11 filing, while Delta had dropped 7 cents to 71 cents per share during the session.

Declining issues outnumbered advancers by nearly 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume came to 1.98 billion shares, down from 2.08 billion shares traded yesterday.

The Russell 2000 index of smaller companies fell 6.78, or 1.01 percent, to 666.35.

Overseas, Japan's Nikkei stock average fell 0.52 percent. In Europe, Britain's FTSE 100 closed up 0.18 percent, France's CAC-40 was up 0.38 percent for the session, and Germany's DAX index was up 0.19 percent.