"The market is running into negative winds, with crude oil [at] records, a weak dollar and weak earnings, which are all in line with a decline in economic activity," said Peter Cardillo, chief market economist at Avalon Partners.
"But this is nothing new, so the market is not seeing a major decline. Beyond the known troubled sectors, there are still some bright spots for earnings," he said.
Off an earlier low of 12,460, the Dow Jones Industrial Average closed down 49 points to 12,527, with 21 out of its 30 components in the red.
Among rising Dow components, Citigroup Inc. gained 0.8% to $23.58, following a report in The Wall Street Journal that Citi plans to sell $12 billion in debt for nearly 90 cents on the dollar. .
Also supporting the blue-chip average, Boeing Co. gained 4.8%. The aircraft manufacturer said that a delay in delivery of its 787 Dreamliner to later this year doesn't change its 2008 outlook.
The S&P 500 Index fell 11 points to 1,354, while the Nasdaq Composite Index lost 26 points to 2,322.
Among sectors in the S&P 500, energy was the only one rising, while all the other sectors fell, led by consumer discretionary down 2.4% and financials off 2.1%.
Trading volumes showed 1.2 billion shares exchanging hands on the New York Stock Exchange, where decliners topped gainers by 2 to 1, and 816 million trading on the Nasdaq stock market, where decliners topped gainers by 3 to 1.
Earnings reveal economic woes
Atlanta-based UPS cited a weakening U.S. economy for a decline in business, with higher fuel prices also denting its expected results. Its shares fell 3.7% to $70.57. .
The report led the transportation sector to fall 3.5%, with FedEx losing 3%, while airlines such as JetBlue Airways and Continental Airlines fell steeply on surging crude oil prices.
Electronics retailer Circuit City also noted challenging conditions, but despite that reported a fourth-quarter profit.
Fueling overall concerns about earnings and the economy, crude futures jumped 3% to a new record of $112.21 a barrel, after news of a drop in weekly crude inventories. The May crude contract then closed up 2.2% to $110.87 a barrel.
Also adding to the overall gloom, the International Monetary Fund said there is one chance in four that global economic growth will drop to recession levels in 2008 and 2009. The global economy is losing speed in face of the major financial crisis, the IMF said.
"The monetary authorities appear to have stabilized the financial system, at least for the time being, and equities have rallied off their lows," said Ken Tower, chief market strategist at Covered Bridge Tactical.
"However, any significant increase from current levels will require a return to more vibrant economic growth than we believe is likely," he said.
Tower downgraded his medium-term outlook on the market from positive to neutral.
Gold futures also gained, with the contract for June delivery gaining $19.50 to close at $937.50 an ounce on the New York Mercantile Exchange. .
A weekly survey by the Mortgage Bankers Association found mortgage applications rose a seasonally adjusted 5.4% last week compared with the final week of March, with the four-week moving average for all loans tracked by the MBA up 1.8%. .
By Nick Godt