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Stocks Close Lower

Stocks dropped on Wednesday after a string of companies warned about profits, and newly-released economic data raised doubts about the strength of the U.S. economy's recovery. Tensions continued to rise in the Middle East, fanning fears that the turmoil there could disrupt world oil supplies.

The tech heavy Nasdaq Composite index lost 19.39 points, or 1.07%, to 1,785.01. The 30-stock Dow Jones industrial average fell 115.69 points, or 1.12%, to 10,198.02. The broader Standard & Poor's 500 Index, meanwhile, dropped 11.28 points, or 0.99%, to 1,125.48.

Wall Street will continue to focus on upcoming economic reports for more evidence that the U.S. economy is emerging from its slump. On the docket tomorrow are initial jobless claims for the week ended March 30. Standard & Poor's is forecasting the number of individuals filing for first-time unemployment benefits to fall to 390,000 for the week from 394,000 in the prior week.

Investors will also keep an eye on corporate results. Among the companies reporting earnings on Thursday are Audiovox (VOXX), which markets cellular telephones, vehicle security entertainment systems and consumer electronics, and barbecue restaurant operator Famous Dave`s of America (DAVE).

Triggering the broader market's retreat earlier in the session on Wednesday was news that activity in the services sector was slower than expected in March, which suggests the economy is not rebounding as strongly as economists had predicted.

The Institute of Supply Management's non-manufacturing index slipped to 57.3 in March from 58.7 in February. However, any number over 50 indicates an expansion. Standard & Poor's had been expecting a reading of 59.0.

In corporate news, Commerce One (CMRC) was one of a number of tech companies to issue warnings. The maker of electronic commerce software said its revenues would fall short of estimates because of sluggish technology spending.

Internet software maker Interwoven (IWOV) also warned its results would disappoint.

Worries about corporate accounting continued to dog the market. Shares of energy trader Dynegy (DYN) were down after the Wall Street Journal reported that the company used a special-arrangement partnership designed to boost its cash flow and reduce its tax bill. Dynegy says its auditor has approved the disclosure and accounting of the partnership.

And shares of cable TV concern Adelphia Communications (DYN) fell after the company confirmed that the Securities and Exchange Commission is conducting an informal inquiry into its previously disclosed co-borrowing pacts.

Meanwhile, WorldCom Inc (WCOM), the No. 2 U.S. long-distance carrier, plans to cut 3,700 jobs at its main data and Internet business, or 4% of its total workforce, as part of ongoing cost-cutting efforts.

On the plus side, Dow component DuPont Co. (DD), the largest U.S. chemicals company, said its first-quarter profits would exceed the most optimistic estimates, thanks to lower costs and robust agriculture product sales.

On the global front, Egypt cut off some diplomatic ties with Israel while Israel continued its assault on Palestinian strongholds in the West Bank.

Investors shrugged off encouraging statements late Tuesday from a central bank official. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, made bullish remarks on the economy, saying that it is likely to grow strongly, according to Standard & Poor's. He added that interest rates will have to rise as the economy picks up, but the timing of such a move is not clear.

Treasury Market

U.S. Treasuries ended higher on the decline in equities.

The weaker than expected services sector activity data were somewhat friendly to bonds -- the market likes to see "declines" in economic data, according to S&P. The numbers are likely to sponsor a modest bid in Treasuries and maintain the curve steepening trade as it plays into the less aggressive Fed tightening scenario, notes S&P.

As part of the ISM data, new orders dropped to 54.9 from 57.3, while prices jumped another three notches to 53.0 from 50.0.

But tensions in the Middle East continue to loom over the market, adds S&P.

World Markets

European stocks ended mixed. In London, the FTSE 100 index was off 3.60 points, or 0.07%, at 5,247.80 on economic growth uncertainties in light of the escalating Middle East crisis. There was little reaction to reports that the March building index rose and that housing prices rose at a slower pace than previous months.

In Paris, the CAC 40 index was up 4.93 points, or 0.11%, at 4,632.26.

In Frankfurt, the DAX index was off 29.24 points, or 0.55%, at 5,281.84 on worries about economic growth and consumer spending. There are some fears that the Middle East crisis could produce higher oil prices, which would stoke inflation and restrain recovery.

Asian markets closed mixed. In Tokyo, Japan's benchmark Nikkei 225 index closed up 196.22 points, or 1.75%, at 11,400.71. The indices were led higher not only by market heavyweight technology and telecom shares, but also lightweight chemical and other cheaply-priced stocks.

But Hong Kong's Hang Seng index was off 44.08, or 0.41%, at 10,833.96.

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