Bond yields rose to nearly two-week highs, and the yen rallied for a second straight day on expectations Japanese investors will repatriate foreign assets as the fiscal year ends.
"There's a crisis of confidence out there in the very near term," said Larry Rice, chief investment officer at Fahnestock & Co. "Economic recovery is spotty at best. ... Valuations are still high."
Investors are on edge after a series of accounting scandals, starting with collapsed energy trader Enron Corp. <ENRNQ.PK> to, most recently, bankrupt telecom firm Global Crossing <GBLXQ.PK>. Nortel slumped more than 6 percent, although the Canadian firm said stock deals leading to the executive's departure were not part of a wider scandal.
Lingering nervousness about other potential accounting blowups, uncertainty about the economy, fears of a possible attack on the United States and lackluster trading conditions kept the market under pressure.
"I still think the accounting issues hang over the market like a dark cloud," said Eric Gustafson, portfolio manager at Stein, Roe & Farnham. "Every day that we can complete without any further accounting scandals is healthy for the market."
The blue-chip Dow Jones Industrial average <.DJI> dropped 21.04 points, or 0.21 percent, to 9,863.74, while the broad Standard & Poor's 500 index <.SPX> fell 4.44 points, or 0.4 percent, to 1,107.50. The tech-loaded Nasdaq composite index <.IXIC> fell 12.44 points, or 0.67 percent, to 1,834.22.
Trading volumes were moderate as uncertainty kept many investors on the sidelines. On the Big Board about 1.1 billion shares changed hands, while about 1.5 billion were traded on Nasdaq.
"There's not a whole lot of inspiration out ther ...