Stocks opened lower amid signs that the consumer was buying fewer goods that will cost more in the future.
Earnings news also weighed on markets and amplified concerns over the economy as retailers Liz Claiborne and Macy's both posted reports that left Wall Street dissatisfied. Farming equipment manufacturer John Deere also missed and warned of troubles ahead because of costs related to raw materials.
Meanwhile, total sales at retailers edged down 0.1 percent in July on another big drop in auto sales, according to a Commerce Department report. Also, import prices climbed a bigger-than-expected 1.7 percent in July, capping a 21.6 percent gain over the past 12 months that was the largest in the past 26 years, a Labor Department report showed.
Broader damage, however, was prevented by continued strength in technology as chipmaker Nvidia posted a loss that nevertheless beat analyst estimates.
Earnings Pose a Problem
Net profit rose to $575.2 million, or $1.32 a share, in its fiscal third quarter, from $537.2 million, or $1.18 a share, a year earlier, while analysts were expecting earnings of $1.36 a share.
Liz Claiborne saw its shares tumble after the company reported better-than-expected earnings but lowered its full-year outlook. Macy's missed earnings and said same-store sales fell 2.1 percent, pushing shares lower.
Merck led a minority of gainers on the Dow, while construction equipment manufacturer Caterpillar felt the sting of Deere's loss and was among the biggest losers on the index.
Wall Street was looking to bounce back the day after the Dow lost more than 1 percent on more bleak news from the financial sector. The move lower thwarted a week-long stocks rally that saw the bluechip index gain more than 4 percent.
"All of this volatility is usually the precursor to a large move," Jack Bouroudjian, a principal at Brewer Investments. "When you have a lot of money on the sidelines and there's a lot of tension and a lot of nervousness out there, that's usually indicative of a bottom."
Housing, Banks Continue to Challenge
Problems in housing also will haunt the market, as data released before the bell indicated a drop in mortgage applications as interest rates surge. Ahead of trading, Toll Brothers said its expects third-quarter homebuilding revenue to drop 34 percentbut shares gained.
The banking industry also faced more trouble, with Capital One shares falling after Fox-Pitt announced it was beginning coverage of the bank with an "underperform" rating and a price target of $34 per share, compared with the company's $43.16 at the close of Tuesday trading.
The sector was broadly lower with Bank of America continuing to take a beating over credit concerns.
In deal news, CVS Caremark shares slid after the pharmacy chain said it was buying Longs Drug Stores for about $2.6 billion. Longs shares soared.
Also in earnings, Dutch financial group ING rerted quarterly net profit that beat estimates as investments fell less than expected, and its underlying insurance and banking business remained solid.
Second-quarter net profit fell 25 percent, hurt by lower real estate, private equity valuations and investment returns, to 1.92 billion euros ($2.86 billion).