Updated from 4:03 p.m. EST

Stocks closed lower Thursday as another day of unrest in the bond market dragged the Dow Jones Industrial Average below the 11,000 mark once again.

The Dow lost 33.46 points, or 0.3%, to 10,972.28, and the S&P 500 fell 6.24 points, or 0.49%, to 1272.23. The Nasdaq Composite slid 17.74 points, or 0.78%, to 2249.72, after having gained as many as 12 points earlier in the session, and lost ground for the sixth straight trading day.

"Today was a bit disappointing," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "The bond market has a flat yield curve and people are still concerned about inflation. We're still left looking for any indication that the Federal Reserve won't raise rates as much as people are fearing."

The 10-year Treasury note was unchanged in price to yield 4.73% and is now even with the yield of the two-year note. Earlier, prices had slipped after the government auctioned $8 billion of 10-year notes. The dollar fell against the yen and rose against the euro.

"We're still absorbing a lot of things," said Paul Nolte, director of investments with Hinsdale Associates. "The risks right now are certainly still with the bond market. It's providing some good competition for stocks."

The yen strengthened after the Bank of Japan signaled its campaign of deflation-fighting, zero-percent interest rates will be gradually undone through open-market operations over the next several months. The decision, which stops short of an immediate interest-rate hike, was widely expected but still sparked buying in many world markets.

The dollar also coped with a report showing the U.S. trade deficit widened to $68.5 billion in January. Economists were expecting a gap of $66.5 billion.

"Our forecast was undone by two factors," said Ian Shepherdson, chief economist with High Frequency Economics. "The impact of the post-Katrina spike in oil prices is lingering; it will eventually fade. Second, trade in goods ex-oil and aircraft -- core -- deteriorated again."

On Friday, the Labor Department is expected to say the U.S. economy added 210,000 jobs last month while the unemployment rate held steady at 4.7%. Traders are mainly worried about a stronger jobs number that could spur the Federal Reserve into hiking interest rates past its next two meetings on March 28 and May 10.

To view Gregg Greenberg's video take on today's market, click here .

"This number tomorrow may rattle the bond market over the short term," said Nolte. "The possibility also exists this may be the peak of this number and it may come down over the next couple months."

Pavlik adds that Thursday's negative action was due to "traders who are leery about entering positions with the economic data due tomorrow morning."

The Philadelphia Semiconductor Sector index was also a source of weakness, closing down 1.4% after having been up as much as 1.1%. Components Broadcom ( BRCM), Micron Technology ( MU) and National Semiconductor ( NSM) finished with losses of 2.4% or greater.

About 1.56 billion shares changed hands on the New York Stock Exchange, with decliners beating advancers by a 9-to-7 margin. Volume on the Nasdaq was 1.98 billion shares, and three stocks fell for every two that rose.

Oil, whose 2% decline Wednesday helped lift the Dow to a 25-point gain, was firming as Iran continued to warn the West against economic sanctions over its nuclear program. Crude for April delivery finished up 45 cents to $60.47 a barrel.

Natural gas ended the session down 5 cents to $6.60 per million British thermal units after the Energy Department said 85 billion cubic feet of gas were drawn from inventories last week. Tracking indices for the energy group were uniformly lower. The Philadelphia Stock Exchange Oil Service Sector index lost 0.5%, and the Amex Natural Gas index was off 1.1%.

Few other market subgroups posted gains. Biotech, down 1%, and airlines, lower by 1.4%, were the among the leading laggards.

Among stocks, shares of Biogen-Idec ( BIIB) and Elan ( ELN) remained in the spotlight after a Food and Drug Administration panel recommended Wednesday that their Tysabri treatment for multiple sclerosis be allowed back on the market.

Both shares were halted during the advisory session. Elan resumed trading 30 minutes before Wednesday's close and promptly surged 25%. Biogen traded in the after-hours session, jumping more than 8% to just under $50. On Thursday, Elan slid 3.1% to $15.32, while Biogen added 4.5% to close at $47.54.

Clothing retailer Urban Outfitters ( URBN) said fourth-quarter earnings rose 31% from a year ago to $35.6 million, or 21 cents a share, matching estimates. Sales rose 27% to $318.6 million, also in line with forecasts. The stock lost 56 cents, or 2.2%, to $24.85.

Google ( GOOG) reportedly has agreed to pay $90 million to settle allegations it overcharged advertisers targeted by click fraud. The proposed settlement still needs court approval. Yahoo! ( YHOO), which was also named in the suit, has vowed to fight the charges. Google continued its recent slide, finishing down $10.88, or 3.1%, to $343. Over the last eight sessions, Google has lost more than 10%.

TiVo ( TIVO) said its fourth-quarter loss narrowed 42% to $19.5 million, or 23 cents a share, while sales rose to $47 million from $34.2 million a year ago. Analysts were expecting a loss of 23 cents a share on sales of $46.4 million. TiVo added 27 cents, or 4.7%, to $6.02.

Video rental chain Blockbuster ( BBI) said fourth-quarter net income rose to $18 million, or 9 cents a share, from $2.8 million, or 2 cents a share, a year ago. Excluding items, earnings were 17 cents a share, beating the consensus by 2 cents.

However, shares closed lower after the company said it will restate financial results back through 2003 due to accounting practices related to its rental library. Blockbuster shares gave up 25 cents, or 6.5%, to close at $3.62.

Meanwhile, Movie Gallery ( MOVI) shares plummeted 17.4% after Bear Stearns slashed its 2006 earnings estimate for the rental chain and cut its stock price target to $1 from $3. Movie Gallery dropped 43 cents to $2.04.

Sun Microsystems ( SUNW) finished higher after Lehman Brothers raised its investment rating to equal rate from underweight. The brokerage upped its price target to $5.50 a share from $5. Sun gained 16 cents, or 3.7%, to $4.51.

Overseas stocks were higher, with London's FTSE 100 adding 0.7% to 5856 and Germany's Xetra DAX adding 1% to 5732. In Asia, Japan's Nikkei surged 2.6% to 16,037 despite the monetary pronouncements, while Hong Kong's Hang Seng added 0.1% to 15,510.

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