The Philadelphia Fed said its index of current activity fell from 18.5 in August to negative 0.4 this month. The regional bank said indicators for general activity, new orders and shipments fell substantially from August and suggested no growth for September.

The pullback after yesterday's big stock rally illustrates how sensitive Wall Street remains to any news that might squelch hopes of a gradual economic slowdown. Investors are concerned the Federal Reserve has perhaps slowed the economy too quickly as it sought to contain inflation. The Fed raised interest rates 17 consecutive times over two years before leaving them unchanged for the second straight time yesterday.

Earlier, the Conference Board said its index of leading indicators fell in August for the second straight month. The Conference Board said the index, considered a good gauge of future economic activity, fell 0.2 percent to 137.6 last month, in line with analysts' expectations. The index also fell 0.2 percent in July after edging up 0.1 percent in June.

"As long as we are data-dependent, the market is going to be vulnerable to some significant swings," said Alan Gayle, senior investment strategist and director of asset allocation for Trusco Capital Management.

The Dow Jones industrial average fell 79.96, or 0.69 percent, to 11,533.23. Early in the session, the Dow's level had put it little more than 100 points away from its all-time high of 11,722.98 reached in January 2000.

Broader stock indicators also fell. The Standard & Poor's 500 index, which reached a five and a half year high yesterday, fell 7.15, or 0.54 percent, to 1,318.03 and the Nasdaq composite index fell 15.14, or 0.67 percent, to 2,237.75.

Bonds rose sharply, with the yield on the benchmark 10-year Treasury note falling to 4.64 percent from 4.73 percent late yesterday as investors theorized that the Fed would keep interest rates stable. The dollar was mixed against other major currencies, while gold prices rose.

Oil, which has helped buoy the market with falling prices in recent weeks, rose 85 cents to $61.59 a barrel on the New York Mercantile Exchange.

"The Fed has put their stake in the ground with their forecast of decelerating growth and easing future inflation pressures," Gayle said, predicting the markets will be nervously awaiting corporate earnings news and economic data in the coming weeks.

One bit of news came from the Labor Department, which said the number of newly laid-off workers filing for unemployment benefits rose last week by the largest amount since early August.

The market's reaction to economic numbers reflects concerns about large swaths of the stock market, such as energy, said Subodh Kumar, chief investment strategist at CIBC World Markets.

"Basically, what the market is reflecting as it has through most of this quarter is that the cyclical growth aspects are cooling down," he said. He wouldn't be surprised by further declines.

"It's too early to bottom fish in cyclical areas. I'd much rather stay in areas where you're seeing evidence of restructuring and quality growth delivery," he said, mentioning health care, telecommunications services and information technology.

In corporate news, Wal-Mart said it plans to start a test program in Florida in which it will sell generic prescription drugs for $4 for a 30-day supply. The country's largest private employer, with about 1.3 million workers, plans to take the program to as many states as possible next year. The company has faced criticism from some who call its health care coverage inadequate. Wal-Mart was down 41 cents, or 0.84 percent, to $48.46.

Wal-Mart's announcement hurt drugstore stocks. CVS Corp. fell $2.96, or 8.35 percent, to $32.47, while Rite Aid Corp. was off 24 cents, or 5.04 percent, at $4.52.

FedEx Corp. said its first-quarter profit rose 40 percent amid strong demand for ground and international express shipments. The Memphis-based shipper has been able to pass on rising fuel costs to consumers in the form of surcharges. FedEx was down $1.53, or 1.42 percent, at $106.

In other news, Hewlett-Packard Co., which has come under criticism for a scandal over media leaks, fell $1.91, or 5.19 percent, to $34.87 after several newspapers reported today that Chief Executive Mark Hurd had a more direct role in an internal investigation than had been previously disclosed.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where preliminary consolidated volume came to 2.67 billion shares, compared with 2.57 billion traded yesterday.

The Russell 2000 index of smaller companies was down 7.35, or 1 percent, at 727.13.