Wall Street saw some bright spots in merger activity and strong earnings from Nike Inc. and Carnival Corp., but the market became increasingly uneasy as surging energy prices threatened consumer spending. Investors also awaited the Fed's decision whether to raise rates or halt its string of increases to mitigate an economic slide following Hurricane Katrina.

With an intensifying Tropical Storm Rita nearing Florida's tip and poised to hammer the Gulf Coast just weeks after Katrina, the market retreated heavily late in the session amid light trading volume.

"Front and center would be concerns of the storm approaching tomorrow, of which you're seeing crude oil trading up $4," said Steven Goldman, chief market strategist at Weeden & Co., who noted a steep decline in oil prices at midday.

Crude oil gained even as OPEC neared a consensus on selling 2 million additional barrels a day to offset a potential supply shortage from recent refinery shutdowns. On the New York Mercantile Exchange, a barrel of light crude jumped $4.39 to $67.39, as gasoline futures climbed 24 cents to $2.04 a gallon.

According to preliminary calculations, the Dow Jones industrial average dropped 84.31, or 0.79 percent, to 10,557.63. The Dow declined as much as 120.69 during the session.

Broader stock indicators also dropped. The Standard & Poor's 500 index fell 6.89, or 0.56 percent, to 1,231.02, and the Nasdaq composite index sank 15.09, or 0.7 percent, to 2,145.26.

Bonds rose, with the yield on the 10-year Treasury note sliding to 4.25 percent from 4.27 percent on Friday. The U.S. dollar was mixed against other major currencies in European trading, while gold prices gained a second day and set a fresh 17-year record.

Although Wall Street is uncertain about what the Fed's decision is likely to be, many analysts are predicting the central bank will continue lifting rates to stem inflation and will keep that as its main priority despite the widespread economic ripple left in Katrina's wake. The Fed's policy announcement is expected tomorrow afternoon.

"I don't see where they're going to be able to back down with inflation increasing the way it is and oil rising," said Bill Groenveld, head trader at vFinance Investments.

Groenveld also said Rita was another concern for the market as it approached the southern end of Florida en route to the Gulf of Mexico. Some meteorologists were forecasting that the storm could strengthen into a hurricane by tonight.

In corporate news, Nike, the world's biggest shoemaker, said higher sales across the board helped lift its first-quarter profit 32 percent to easily beat Wall Street expectations. Worldwide future orders for products scheduled for delivery through January 2006 grew 11 percent to $4.9 billion, the company added. Nike surged $4.99 to $83.45.

Cruise-ship operator Carnival posted a 12 percent gain in third-quarter profit, as revenue swelled from increased ship capacity and ticket prices. The company also said while the hurricane has depressed results in the latest quarter, recent bookings remain strong and average prices are above the year before. Carnival added $1.75 to $50.78.

Sirius Satellite Radio Inc. raised its projected full-year revenue by $5 million to $230 million, but the expanded forecast still fell short of analyst targets for $234.5 million. The company maintained estimates for 3 million subscribers by year-end, up from about 2.1 million as of last week. Sirius fell 35 cents to $6.70.

Online retailer Overstock.com Inc. sank $2.98 to $39.87 after Stanford Research and Legg Mason downgraded the stock to "hold," citing concerns that the company's targeted profitability will be delayed by a year until 2007. Overstock.com said Friday it was completing a technology overhaul that prevented it from posting new products to its Web site for nearly five weeks, but reaffirmed its forecast to break even this year.

On the acquisition front, Norway-based Norsk Hydro ASA said it agreed to buy oil and gas firm Spinnaker Exploration Co. for $2.45 billion in a move to beef up its Gulf Coast operations. And Hewlett-Packard Co. is paying $425 million in cash for Peregrine Systems Inc., a maker of software for managing computer systems. Spinnaker jumped $15.40 to $64.15, and Peregrine gained $6.22 to $25.32.

Declining issues outpaced advancers by 11 to 5 on the New York Stock Exchange, where volume of 1.56 billion shares fell short of the 2.55 billion shares traded at the same point Friday, when options trading increased the number of shares that changed hands.

The Russell 2000 index of smaller companies fell 4.96, or 0.74 percent, to 667.02.

Overseas, Britain's FTSE 100 added 0.40 percent, Germany's DAX index lost 1.21 percent, and France's CAC-40 was lower by 0.08 percent. The markets in Japan were closed today for a national holiday.