The Dow Jones Industrial Average closed down 73.24 points at 12,103.30, with 22 of 30 components contributing to losses.

The S&P 500 slipped 7.39 points to 1,378.83, while the technology-rich Nasdaq Composite gave up gains to close down 8.93 points at 2,376.01, after earlier trading as high as 2,401.33.

Thursday's lower prices followed a boisterous rally Wednesday that saw the Dow industrials end at a record after Democrats, who called for greater fiscal responsibility, took control of the House of Representatives for the first time in 12 years. See Market Snapshot.

"Today you're seeing the market react in another way to the shifting to a Democratically-controlled Congress," said Robert Pavlik, chief investment officer at Oaktree Asset Management.

"The reaction is steepest in the drug sector," due to concerns the Democrats may find new ways to regulate it, Pavlik said.

"In my opinion, the selling in the pharmaceutical sector is overdone, and some investment professionals may be waiting to step in and buy soon," he said.

However, Paul Nolte, director of investments at Hinsdale Associates, said "To me this is a very minor correction, after a pretty good run-up. All the excitement today is in the gold and oil markets."

On the data front, the U.S. Commerce Department said the trade deficit narrowed by 6.8% to $64.3 billion, which was the largest narrowing since December 2004, and slightly below the consensus forecast of a $66.3 billion deficit. See full story.

Other data reports pointed to economic weakness. The University of Michigan's consumer sentiment report fell to 92.3 this month from 93.6 in October. Economists polled by MarketWatch had expected a reading of 93.8. See full story.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the report showed that "the boost to confidence from the plunge in gas prices is over."

The Commerce Department said wholesale inventories reached their highest level relative to sales in over a year. See full story.

In the broad market, there were 1.857 billion shares traded on the New York Stock Exchange, where declining stocks outnumbered advancing shares by 19 to 13. About 2.419 billion shares traded on the Nasdaq market, with almost 2 falling stocks for every 1 on the rise.

------------------

S&P 500 futures erased earlier losses to turn up 1.20 points to 1,392.80 to 1,391.10 and the futures contract on the technology-heavy Nasdaq 100 rose 7.25 points to 1,769.00.

Dow industrial futures eased 3 points to 12,205.

-------------------------

The broader market also welcomed the resignation of Defense Secretary Donald Rumsfeld, although some defense stocks came under some pressure.

The Dow Jones Industrial Average rose 19.77 points to set its new record at 12,176.54, after earlier touching a session low of 12,102.90.

Exxon Mobil Corp. was the biggest percentage gainer on the Dow, rallying 2.2% on a rise in the price of oil. Gains for Altria Group Inc., DuPont and McDonald's lent further support.

Within the Dow, shares of Merck & Co.led the decliners, closing down 3.4% after a news report said the drug maker has disclosed four separate tax disputes in Canada and the United States with potential liabilities totaling $5.58 billion. Fellow blue-chip components Pfizer Inc. and Johnson & Johnson also came under pressure on concern congressional control by the Democratic Party could lead to more government intervention in the negotiation of drug prices for its vast Medicare drug program.

-----------------