Updated from 4:11 p.m. EST

The major U.S. indices retreated from earlier gains Tuesday and closed lower for a second consecutive session, as corporate warnings and the backdrop of war with Iraq chased out bargain-hunters.


Dow Jones Industrial Average

shed 44 points, or 0.6%, to 7524, after hitting 7642, while the


ended 7 points lower, or 0.5%, at 1271, after reaching the intraday high of 1288. The

S&P 500

closed down 7 points, or 0.8%, at 800. During the session, it hit a high of 814 points.

On the war front, two American U-2 surveillance jets were summoned back to their base after they were approached by Iraqi planes, according to CNN. Iraq told the U.N. it wasn't expecting the second plane and reportedly got an apology form the world body.

Meanwhile, division at the Security Council could delay military action against Iraq. Six of the 15 members of the council said the March 17 deadline should be postponed for a month to allow more time for inspections. France and Russia reiterated that they will veto any proposal to attack the nation "under any circumstances," said French President Jacques Chirac.

"The panic phase isn't gone yet. Even though market sentiment surveys show a beginning of a turnaround, we're not done with the selling," said Adolfo Rueda, senior technical analyst at Shields & Co., a New York brokerage firm. He sees support for the Dow at 7500, for the Nasdaq at 1200 and for the S&P 500 at 775.

Elsewhere, Morgan Stanley consultant Barton Biggs said Tuesday that markets around the world are close to an important bottom and that news needs to improve just slightly for equities to rally.

On the NYSE, 1.4 billion shares were traded, with losers outpacing winners by three to two. Some 1.2 billion shares changed hands on the Nasdaq, with decliners also ahead of advancers by a three-to-two margin.

Among individual stocks,


(NOK) - Get Report

, the world's largest mobile phone maker, rattled the wireless-technology sector by saying in a midquarter update that earnings would be at the low end of guidance and sales would likely trail forecasts. The company blamed weak sales of network equipment and costs associated with launching new handset lines. Nokia predicted network sales will drop 15% to 20% in the period, resulting in the unit's posting a big pro forma loss.

Despite the warning, Nokia shares gained 1.0% to $12.80, while



-- which derives much more of its revenue from network equipment -- ended down 5.7% at $5.33 and



shed 0.2% to $6.54.

Delta Air

(DAL) - Get Report

said first-quarter cash flow from operations will be negative because of weak customer demand amid the threat of war with Iraq. Delta shares lost 21.5% to $6.80.

An industry report forecast losses will grow by $4 billion for the U.S. airline industry if a U.S.-led attack against Iraq is launched. The Air Transport Association said carriers would accelerate job cuts by another 70,000 and would reduce daily flights by 2,200 per day.

Shares of American Airlines parent



closed 32.0% lower at $1.64 on reports it was trying to line up financing in case it seeks a chapter 11 filing. United Airlines parent


(UAL) - Get Report

, which is operating under Chapter 11, lost 2.0% to end at 97 cents.

King Pharmaceuticals


ended 24.4% lower at $12.02 after it said the

Securities and Exchange Commission

subpoenaed documents related to its sales to two companies in 1999 and 2000 and its Medicaid pricing during the period. The stock had the steepest decline in the AMEX Pharmaceutical index last year, losing 59% of its value. Merrill Lynch analysts downgraded the stock to neutral from buy, saying it is difficult to recommend the shares until the company has more clarity on the situation.

Also in the pharmaceutical sector, drug maker


(AZN) - Get Report

shares dropped 1.3% lower at $30.85. U.S. prosecutors and the Federal Trade Commission subpoenaed documents related to advertising and marketing of a couple of the company's drugs.

Sabre Holdings

(TSG) - Get Report

slid 4.5% to $14.83. The largest U.S. travel reservations company lowered its first-quarter estimates because of continued weak tourism demand. It now expects earnings of 32 cents to 36 cents a share, below previous guidance of 41 cents to 46 cents, and short of the First Call analyst consensus of 48 cents.

Defense contractor



slumped 3.4% to $13.60 after the company said it expects profit for this year to be $1.60 to $1.75 a share, excluding costs, lower than an earlier forecast of $1.70 to $1.85. The reduced profit was caused by costs of writing off an investment in a failed Internet business and expenses related to the sale of debt owed.

Treasuries were lower, with the 10-year note down 4/32 to yield 3.57%. Crude oil prices for April delivery fell with the prospect of a delayed attack on Iraq. The dollar was little changed against the euro and yen.

Among overseas markets, London's FTSE 100 was up 0.5% at 3452 and Germany's Xetra DAX was 1.4% lower at 2295. In Asia, Japan's Nikkei closed 2.2% lower at 7862, while Hong Kong's Hang Seng lost 0.02% to 8859.

On Monday, the Dow ended 2.2% lower at 7568. The S&P 500 shed 2.6% to 807, while the Nasdaq lost 2.1% to 1278.