Updated from 4:06 p.m. EST

The Dow fell for a fifth straight day Thursday, as companies with exposure to near-bankrupt airline UAL ( UAL) succumbed to selling pressure. The Nasdaq also stumbled amid weakness in networking and hardware stocks.

The Dow ended down 114 points, or 1.3%, at 8623. The Nasdaq fell 19 points, or 1.4%, to 1410, and the S&P 500 lost 11 points, or 1.2%, to 906.

"I think we're seeing a continuation of some well-deserved profit-taking after the recent advance," said Tom Schrader, trader at Legg Mason. "But it's really, really quiet."

Schrader said he expects the selling to continue for another couple of days and believes the S&P could test the 900 level or, in a worst-case scenario, go down to 880.

Volume on the NYSE reached 1.2 billion, while 1.4 billion shares changed hands on the Nasdaq. Losers outpaced winners by 18 to 13 on the Big Board and by 5 to 3 on the Nasdaq.

Companies that do business with UAL were particularly weak after the Air Transportation Stabilization Board rejected the airline's application for a $1.8 billion federal loan guarantee. That move paves the way for the company to file for bankruptcy. Shares ended down almost 60% to $1.25 after being halted for much of the day.

Dow component Boeing ( BA), which is one of UAL's biggest customers, fell 2.8% to $32.96, while United Technologies ( UTX), which makes airplane parts, skidded 2% to $61.16. J.P. Morgan ( JPM), one of UAL's lenders, stumbled 4% to $23.61.

General Electric ( GE) and Disney ( DIS), which also have exposure to the airline, backpedaled as well. Still, UAL's competitors all fared well, with Continental ( CAL) up 4% and AMR ( AMR) higher by 7%.

Jay Suskind, head of institutional equity trading at Ryan Beck & Co., said the bankruptcy had been pretty well telegraphed and he believes the general weakness in the markets stems more from profit-taking after an eight-week rally.

"We've been down four days in a row and I think some people are just saying we've come a long way in a short time," he said. "There's skittishness over what '03 is going to bring and nervousness about what's going to happen with Iraq."

Suskind said a batch of mixed same-store sales results also added to the gloomy tone. "When we got back from Thanksgiving, everyone was saying how great things look. Now some of that optimism has abated a little bit."

Retailers fell 1.8% on average Thursday. Wal-Mart ( WMT) said comparable sales grew 2.6% in November, slightly below analysts' 2.7% estimate and at the lower end of the 2% to 4% growth the firm predicted earlier in the month.

Meanwhile, same-store sales at J.C. Penney's ( JCP) were flat, and Federated Department Stores ( FD) posted a 7.4% decline in comparable sales. Still, a resurgent Gap ( GPS) recorded a 9% rise in November same-store sales, topping analysts' 5.2% estimate.

In the tech sector, Gateway ( GTW) shed 17% to $3.42 after Chief Executive Ted Waitt warned that the low end of the earnings per share range is the best-case scenario in the fourth quarter. Gateway guided to a loss of 10 to 13 cents in its last earnings report.

IBM ( IBM) fell 0.7% to $83.06 after saying it would invest $3 billion to fully fund its U.S. pension plan by the end of the month. The pension shortfall is smaller than the company had indicated in October when it said the fund was short by about $4.5 billion.

Intel ( INTC) also erased initial gains, tumbling 1% to $18.96 ahead of its midquarter update. After the bell, Intel said it expects revenue for the fourth quarter to be between $6.8 billion and $7.0 billion, up from a previous range of $6.5 billion to $6.9 billion. Shares of Intel have climbed about 46% since hitting a low in October on expectations that the firm would raise guidance.

Shares of Advanced Micro Devices ( AMD) added support, however, rising 5% to $8.25 after the chipmaker raised its fourth quarter revenue outlook.

In the drug sector, the news was equally encouraging. Merck ( MRK) said it expects to earn between $3.40 and $3.47 a share in 2003, compared with analysts' current forecast of $3.37. The company also said it still intends to sell its Medco pharmacy management unit in an IPO. Meanwhile, rival Eli Lilly ( LLY) predicted 2002 earnings would be in line with estimates.

In economic news, jobless claims fell 13,000 to 355,000 last week, the lowest level in 21 months and an encouraging sign one day before the key employment report. The four-week moving average, which smoothes out weekly fluctuations, dipped to 376,500 last week, the lowest level since March 2001. Still, some economists said the data could be understated because of the Thanksgiving holiday when unemployment offices were closed.

Treasuries were lower, with the 10-year note falling 15/32 to yield 4.21%.

European markets actually pared their gains after the European Central Bank cut interest rates by a larger-than-expected half percentage point. London's FTSE 100 lost 0.4% to 4032, while Germany's Xetra DAX shed 3% to 3224. In Asia, Japan's Nikkei fell 1% to 8917, while Hong Kong's Hang Seng added 0.1% to 10010.

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