Stocks Cool Down as War Heats Up

Updated from 4:12 p.m. EST

Stocks ended lower Wednesday amid rumors of heightened terrorism threats and scattered reports of an increasingly aggressive Iraqi military.

The Dow Jones Industrial Average fell 50 points, or 0.6%, to 8229, while the Nasdaq slid 3 points, or 0.3%, to 1387.47. The S&P 500 ended the session down 4 points, or 0.6%, at 869.95.

In a sign of the market's volatility, stocks dropped briefly at midafternoon amid a rumor that the terror alert would be raised -- but then regained ground, before turning lower again amid new headlines on Iraq.

Iraqi troops reportedly were moving south from the cities of Baghdad and Basra, with a total of more than 1,000 Iraqi military vehicles, toward U.S. forces, according to CNN.

"Iraq 24/7 is what people are looking at. The market wants to go up and is trying to convince itself this is like the last Gulf War, but with government officials trying to prepare us, you have to believe negative surprises will still surface," said Jim Awad, president and market analyst at Awad Asset Management.

Market breadth was negative at the New York Stock Exchange, with decliners outpacing advancers by less than a two-to-one margin, while volume was light at 1.3 billion shares traded. On the Nasdaq, 1.4 billion shares changed hands, with decliners practically tied with advancers.

"War uncertainty is the main factor causing instability. We believe shares will rally once war is over, but confidence is needed to return to the market," said Ozan Akcin, chief market strategist at EKN. "What is missing and is the long-term sustaining factor for the market is business spending."

Brent May crude was up 2.4% at $28.63 a barrel. The 10-year Treasury bond was up 3/32 to yield 3.93%, while gold was higher.

Elsewhere, one day after the Senate voted to slash President Bush's stimulus package, the White House said a lot could still happen before the tax cut is formalized. Several reports said lawmakers were moved to gut the measure in part because of a perceived delay in the president's request for $75 billion to pay for the Iraq war.