Stocks fell on Tuesday after a weak outlook from Procter & Gamble, disappointing earnings from U.S. Steel and a report showing consumer confidence at a two-year low fueled worries about the economy, consumer spending and corporate profits.
Adding to the nervous atmosphere was some uncertainty about the outcome of Wednesday's Federal Reserve interest-rate decision, while a 3 percent pullback in oil prices hit energy stocks.
Stocks have risen recently, in part, on a widely held view the Fed would cut rates on Wednesday by at least a quarter-percentage point to limit the damage from the housing slump and tighter credit conditions.
But an article by Greg Ip, the Wall Street Journal's Fed watcher, said that a cut is no sure thing, planting a seed of doubt in investors' minds.
There is some uncertainty about what the Fed will do tomorrow and that is weighing on the market, said Bucky Hellwig, senior vice president at Morgan Asset Management in Birmingham, Alabama.
Some earnings disappointments and forward guidance is not encouraging, and there is a feeling that if we don't get help from the Fed, then the fourth quarter and first quarter next year could see even slower economic growth.
The Dow Jones industrial average was down 77.79 points, or 0.56 percent, to end at 13,792.47. The Standard & Poor's 500 Index was down 9.96 points, or 0.65 percent, at 1,531.02. The Nasdaq Composite Index was down 0.73 points, or 0.03 percent, at 2,816.71.
Procter & Gamble, a Dow component, dropped 4 percent to $68.95 after its outlook for the rest of the year disappointed Wall Street. That decline marked P&G's second-biggest daily percentage drop in five years.
U.S. Steel (X.N: Quote, Profile, Research) posted a 35 percent slide in third-quarter profit and warned of an earnings decline in the fourth quarter, sending it shares down 7 percent to $104.62 on the New York Stock Exchange.
Large tech stocks extended their recent rally, capping the Nasdaq's decline. Microsoft, Apple and Google gained as investors sought safety in big-cap technology stocks perceived as sheltered from the global credit storm. Technology was the only S&P sector to end higher.
Apple's shares rose 1 percent to $187.00 after the computer maker said it sold more than 2 million copies of its latest operating system.
Google's stock shot up 2.3 percent to $694.77 on a report the Web search leader is expected to announce Google-powered phones may be on the market by mid-2008.
Shares of Merrill Lynch fell after the investment bank ousted Chief Executive Stan O'Neal just days after reporting the biggest quarterly loss in the company's history. No successor was named.
Merrill's shares fell 2.8 percent to $65.56 on the NYSE.
Energy stocks slid with oil prices, which tumbled from record highs as investors locked in profits. Exxon Mobil fell 2.6 percent to $91.14.
The Conference Board's index of consumer sentiment fell to 95.6 in October, its lowest reading since the aftermath of Hurricane Katrina in 2005. The sharp drop caught economists by surprise. September's reading was revised to 99.5.
Trading was moderate on the NYSE, with about 1.22 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.16 billion shares traded, ahead of last year's daily average of 2.02 billion.
Declining stocks outnumbered advancers by a ratio of about 5 to 3 on the NYSE and by 3 to 2 on the Nasdaq.
(Additional reporting by Jennifer Coogan)