Wall Street has been trying to anticipate whether the Fed will keep interest rates stable — or resume its rate hikes to keep inflation in check — when it meets later this month.

Investors, already armed with recent economic data pointing to a housing slowdown, were forced to digest sour anecdotal evidence today. Beazer Homes USA Inc., Hovnanian Enterprises Inc. and KB Home warned that the home-building sector is facing difficulties such as cancellations and spikes in inventories.

The bad news only worsened this afternoon when news services quoted Yellen as saying the "the inflation outlook remains highly uncertain."

Yellen also said data suggest both the housing market and the overall economy are cooling; the question for investors is how quickly is that occurring.

"It seems to me that the market is trading lower on the fears that the economy is perhaps having a hard landing versus a soft landing," said Jim Herrick, head of equity trading at Robert W. Baird & Co. He contends the mounting news about a housing slowdown has spooked investors because of the major role the robust housing market played in driving economic growth in recent years.

The Dow Jones industrial average fell 74.76, or 0.66 percent, to 11,331.44.

Broader stock indicators also declined. The Nasdaq fell 12.55, or 0.58 percent, to 2,155.29 after posting its largest single-day point drop in more than a month yesterday, and the Standard & Poor's 500 index was off 6.24, or 0.48 percent, at 1,294.02.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.79 percent from 4.80 percent late yesterday. The yield hit a five-month low of 4.73 percent last week. The dollar was mixed compared with most major currencies, while gold fell.

Wall Street is wrestling with the question of how the Federal Reserve will act as it seeks to hold back inflation. Many investors, who would ordinarily cheer falling oil prices, remain focused on whether the Fed will resume its course of rate hikes when it meets Sept. 20 and whether such a move would put the brakes on an already slowing economy and perhaps dent corporate profits.

Oil prices declined after inventory figures showed rising refining capacity was helping add to U.S. gasoline and distillate inventories. Crude prices, which had recently been above $70 a barrel, had already fallen as tensions over Iran's nuclear ambitions eased and due to a lighter-than-expected hurricane season and news that a Gulf of Mexico platform is producing more than before it was struck by Hurricane Katrina. Also, demand was expected to fall as the summer driving season ended. Crude settled down 18 cents at $67.32 a barrel.

The decline in the housing market has been the most glaring sign that the economy has been slowing. One of Wall Street's greatest concerns is that homebuilders and companies dependent on home sales are being hurt by the cooling market, so this week's announcements prompted some investors to pull some money out of the market.

Herrick expects Wall Street will remain "jittery and data-focused," and likely to react to concerns about the housing market especially until it gets a clearer view of corporate earnings for the third quarter.

Beazer, which lowered its full-year profit forecast and pointed to falling sales and contract cancellations, declined $1.04, or 2.71 percent, to $37.33. KB Home was up 1 cent to $40.40 after being down earlier in the session. The company cut its 2006 earnings forecast. Hovnanian said yesterday its fiscal third-quarter profit fell 36 percent as costs rose and orders slowed, though its profit topped forecasts. It rose $1.62, or 6.36 percent, to $27.09.

Flow International Corp. fell $1.40, or 10.29 percent, to $12.20 after the maker of high-pressure waterjet products said it would delay reporting first-quarter results while it examined possible problems with how it accounted for revenue.

Embarcadero Technologies Inc., a maker of data-management software, was up $1.65, or 25.38 percent, at $8.15 after saying it would be acquired by an affiliate of private equity firm Thoma Cressey Equity Partners in a deal worth about $234 million.

Jos. A Bank Clothiers Inc., rose 94 cents, or 3.91 percent, to $25.00, after reporting a better-than-expected second-quarter profit and reiterating its full-year earnings forecast.

Declining issues outnumbered advancers by roughly 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume was essentially flat with the 2.36 billion shares seen yesterday.

The Russell 2000 index of smaller companies was down 5.57, or 0.78 percent, at 706.47.

Overseas, Japan's Nikkei stock average closed down 1.67 percent amid concerns about U.S. interest rates rising. Britain's FTSE 100 closed down 1.20 percent, Germany's DAX index was off 0.68 percent, and France's CAC-40 was down 1.08 percent.