Updated from 4:04 p.m. EDT

A late rally faded Wednesday, but stocks closed off their session lows as investors focused on the growing violence in Iraq and lackluster earnings news.

The Dow Jones Industrial Average closed down 90.66 points, or 0.86%, to 10,480.15; the S&P 500 dropped 7.65 points, or 0.67%, to 1140.51; and the Nasdaq Composite was off 9.66 points, or 0.47%, to 2050.24, after being down 1% earlier in the session.

Volume on the New York Stock Exchange approached 1.5 billion shares, while almost 1.8 billion shares changed hands on the Nasdaq. Advancers and decliners were about even on both exchanges.

The 10-year Treasury note fell 3/32, with the yield at 4.16%. The dollar was higher against the euro and lower against the yen.

The brief bounce back came after RF Micro Devices ( RFMD ) said sales in the current quarter likely will rise amid a strong cell-phone market, tempering concerns about the tech sector ignited by Nokia's ( NOK) warning Tuesday that its first-quarter earnings would not meet expectations.

"Some of these disappointing early warnings from a few companies are just an excuse for the weakness out there," said Peter Cardillo, chief market analyst at S.W. Bach & Co. "The geopolitical concerns are really what have people on edge."

The American-led troops in Iraq are facing the heaviest fighting they've seen since the fall of Saddam Hussein a year ago, as they battle Sunni Muslim insurgents west of Baghdad and a violent Shiite uprising in the south and center of the country. On Tuesday, 12 American marines were reported dead after a seven-hour assault by gunmen on an American base in the Sunni-dominated city of Ramadi.

"This stuff weighs psychologically on investors' minds to continue to hear all this bad news," said Robert Pavlik. "It makes people question what the heck is going on over there, or if this occupation is ever going to end. From my perspective, this president had better clean things up over there."

"I still think that earnings are going to play the most important role in investors outlook over the next couple of weeks," he added. "The news about what's going on in Iraq and chasing down bin Laden gets to be in the background. People say, 'I know the bad news is there, but I can sort of look past it.'"

Earlier in the markets, disappointments at Seagate ( STX) and Alcoa ( AA), fostered some concern about the quality of the upcoming round of first-quarter corporate earnings.

Larry Wachtel, senior market analyst at Wachovia Securities, thinks investors are overreacting to the disappointing earnings news. "The real test will be when the good earnings arrive -- and they will be good -- will they already be priced into the market?" he wondered. "I have no doubt that there's good news to come."

The ratio of first-quarter earnings warnings to positive preannouncements currently stands at 1.6, according to Thomson First Call, well off the historical average of 2.3. Companies have issued 25% more positive preannouncements during the quarter than they did in the first, second and third quarters of 2003. Analysts are now calling for 17.1% earnings growth in the first quarter, up from 13.4% at the start of the year.

John Butters, a research analyst at Thomson Financial, thinks that number is likely to rise to 20% or better.

The Nasdaq is currently up about 2.3% on the year and has rallied 7.8% from its 2004 closing low of 1902 on March 23. While the index remains down 4.8% from its closing high of 2154 on Jan. 26, it is comfortably above both its 50-day moving average of 2018 and its 200-day moving average of 1908.

The technical situation is similar in the Dow, which is up 0.2% on the year and 4.3% from its closing low of 10,048 on March 24. The average is off about 2.4% from its Feb. 11 high of 10,738, but sits above its 50-day moving average of 10,457 and 200-day moving average of 9870.