NEW YORK (MarketWatch) -- U.S. stocks pared their losses Tuesday afternoon, as analysts debated the economic impact of Hurricane Katrina and noted earnings warnings from Best Buy and Knight-Ridder compounded the losses.
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The Dow Jones Industrial Average ($INDU: news, chart, profile) was down 29 points at 10,653. and the S&P 500 ($SPX: news, chart, profile) off 3.36 points to 1,237.
The Nasdaq composite ($COMPX: news, chart, profile) was off its morning lows, down just 0.66 points at 2,182.
Declining stocks outweighed rising shares by 20 to 11 on the New York Stock Exchange, where more than 1 billion shares were traded. In the Nasdaq market, there were 1.2 bmillion shares traded, with falling stocks outpacing gainers by 17 to 11.
"There is no news behind [the late session improvement in stock prices]," said Peter Boockvar, equity strategist at Miller Tabak. "We're really just seeing some afternoon short-covering."
The market Tuesday morning broke from its recent string of gains, despite news that wholesale prices rose less than expected last month and that the U.S. international-trade gap unexpectedly narrowed during July.
Stocks have wracked up strong gains in December, inspite of the enormous human and economic toll of Hurrican Katrina.
Analysts were divided as to whether the selling pressure Tuesday could signaled a small pullback, or was an indication of further declines.
Investors likely will remain uncertain about the extent of economic slowing until early October, when the government will release some reports about economic activity in September, according to Paul Nolte, director of investments at Hinsdale Associates.
"The market just got a little ahead of itself. There was a tremendous rally inspite of all the destruction of Katrina," said Todd Leone, head of listed trading at S.G. Cowen.
But other analysts believe the market is finally coming to grips with the likelihood that Katrina's devastation in much of the Gulf Coast will slow earnings and economic growth.
"We've had a nice post-Katrina run, and the market is getting close to technical resistance levels," said Barry Hyman, equity market strategist at Ehrenkrantz, King & Nussbaum.
"And from the fundamentals perspective, we are getting a lot of earnings warnings," Hyman said. "The market is realizing the economy will slow because of Katrina."
Mounting evidence that the wreckage left by the hurricane will hinder growth even has sparked speculation that the Federal Reserve may have to back off its current program of incremental, quarter-point increases in interest rates, Hyman said.
Before the opening, the Labor Department reported that wholesale prices increased 0.6% in August, beneath the 0.7% advance expected by economists polled by MarketWatch.
Core prices, which strip out food and energy prices, were unchanged. The consensus forecast had been for a 0.1% gain in the core rate.
Separately, the Commerce Department said that a record amount of U.S. goods and services sold overseas helped narrow the U.S. trade gap in July despite the record high cost of foreign oil.
The nation's trade deficit narrowed in the month by 2.6% to $57.9 billion. Read full report. The MarketWatch forecast had been for the deficit to widen to $59.5 billion.
In other economic news, the National Association of Realtors said lower mortgage rates and rebuilding in the Gulf Coast region will help to boost home prices nationwide.
The Treasury market rallied after news of the tamer-than-expected increase in wholesale-level inflation. The benchmark 10-year Treasury note last was up 9/32 at 100-28/32 with a yield ($TNX: news, chart, profile) of 4.143%. The 10-year's yield rose to a two-week high of 4.17% on Monday.
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