Updated from 1:34 p.m. EDT

Whacked by the latest biological weapons scare, blue-chip stocks saw their upward climb ended Friday ahead of what is shaping up as another nervous weekend across the U.S.

After softening on disappointing government data, the major indices plummeted at midday when reports surfaced that an employee of

NBC News

in New York had tested positive for a skin-based form of anthrax. A late rally brought the tech-heavy

Nasdaq

back to positive territory at the close while the

Dow Jones Industrial Average

and

S&P 500

both ended lower.

"There was a lot of nervousness and anxiety over

the possibility of some terrorist activity from the weekend," said Alan Ackerman, market strategist for Fahnestock. "Following the anthrax report, there seem to be even higher levels of nervousness."

The declines came just a day after the

S&P 500

and

Nasdaq

closed above their pre-Sept. 11 levels for the first time since the terrorist attacks. Analysts said the volatility shows that in an event-driven market such as this, no trend is trustworthy.

"The market is still very nervous, and will probably continue to stay in a nervous state until it gets better insights into this war condition and the threat of biological warfare diminishes," said Peter Cardillo, chief strategist at Westfalia Investments. "The market is going to have to live with this type of fear."

The Dow ended the day down 66 points, or 0.7%, at 9344, while the S&P 500 fell 5.8 points, or 0.5%, to 1092. The Nasdaq gained 1.84, or 0.1%, to 1703.

"I think we're going to see the market stay in

a range for a while till conditions improve, not just on the economic front but also on this war scene," Cardillo said.

Earlier, the Commerce Department reported that

retail sales fell a steeper-than-expected 2.4% last month. The drop, coming in the wake of the Sept. 11 terrorist attacks, showed a pullback in all groups, including a 4.6% plunge in auto sales.

The weak retail report was both a "byproduct of Sept. 11" and of a pre-existing structural weakness in the economy, said Michael Strauss, market strategist at Commonfund Group. "But I think we'll get some bounce in October."

Confidence was bolstered somewhat by a preliminary reading of 83.4 in the University of Michigan's

consumer confidence index for October, up from September's final reading of 81.8 and well above expectations for a decline to 76.0.

The strong sentiment index is due to "expressions of patriotism and the sense that things can't get worse," said Tony Crescenzi, chief bond strategist at Miller Tabak, citing another consumer sentiment index by

ABC News

/

Money Magazine

, which also rose last week. But Crescenzi added that over time, the assessment of personal finances could affect actual spending more than consumer expectations.

Retail sales were weak, but "if you take the quarter as a whole, consumption spending will still have a plus sign," said Asha Bangalore, U.S. economist at Northern Trust. She estimates that fourth-quarter consumption levels will decline, but said she sees a pickup by the first quarter of 2002.

Separately, the Labor Department said September's

producer price index climbed 0.4% ahead of expectations. The "core" index, regarded as a better proxy for inflation because it excludes food and energy items, rose 0.3%. Gasoline prices rose 6.3% and motor vehicles rose 1.3%, fueling the increase.