The Dow Jones industrial average (INDU) lost 121 points, or 1.5%. Weakness in Walt Disney and Kraft dragged on the blue-chip indicator after the companies reported results that missed forecasts.

The Standard & Poor's 500 (SPX) index lost 6 points, or 0.8%. The Nasdaq composite (COMP) lost 1 point or 0.1%.

After the close, Cisco Systems reported lower quarterly sales and earnings that nonetheless topped estimates.

Since closing out the worst January ever, stocks have meandered as investors have worked through mostly disappointing corporate results and economic reports.

"The earnings and forecasts have been terrible, and we're probably in the teeth of the recession," said Thomas Nyheim, portfolio manager at Christiana Bank & Trust Company. "But the economic numbers today weren't as bad as had been expected, and that helps."

"The stimulus will ultimately pass and at some point in the second half of the year it will have an impact," he said. "I think people are trying to look forward to when all the money starts moving through the system."

Stocks rose Tuesday on better-than-expected earnings results from drugmakers and a surprise rise in a key measure of the housing market. But Wednesday's session was more turbulent.

Thursday brings reports on weekly jobless claims, fourth-quarter productivity and December factory orders.

Additionally, the nation's chain stores will be reporting January year-over-year retail sales. Sales are expected to remain weak as the recession cuts into consumer spending.

Economy: The Institute for Supply Management (ISM)'s services sector index improved to 42.9 from 40.1, versus forecasts for a drop to 39. It was the third economic report this week that was better than expected, following the ISM manufacturing index Monday and the pending home sales index Tuesday.

Most economists and market pros expect the recession to last through at least the end of this year. However, the reports have nonetheless helped reassure investors that some economic sectors are closer to stabilizing.

Wednesday also brought a pair of dour labor market reports ahead of the bigger government employment report due on Friday.

Payroll processing firm ADP reported that private-sector employers cut 522,000 jobs in January, versus forecasts for 535,000 job cuts. Employers cut 659,000 jobs in December.

Planned job cuts in January rose to nearly 242,000, up 45% from December, according to the latest report from outplacement firm Challenger, Gray & Christmas. The number of planned cuts was the highest level in seven years.

Another report showed that unemployment rose in 98% of metropolitan areas across the country in December.

Company news: Late Tuesday, Walt Disney (DIS, Fortune 500) reported weaker quarterly sales and earnings that missed expectations. Shares of the Dow component fell 8% Wednesday.

Kraft Foods (KFT, Fortune 500) reported lower quarterly earnings Wednesday of 43 cents per share that missed expectations by a penny per share. Shares fell 9%.

CNNMoney.com parent Time Warner (TWX, Fortune 500) reported quarterly sales and earnings Wednesday that missed estimates. The company also warned that 2009 profit would be flat with the previous year.

Bank of America (BAC, Fortune 500) lost 11% while the rest of the financial sector was mixed.

Select technology shares managed gains, protecting the Nasdaq from bigger losses. Yahoo (YHOO, Fortune 500), Intel (INTC, Fortune 500) and Applied Materials (AMAT, Fortune 500) all gained.

Market breadth was negative. On the New York Stock Exchange, losers beat winners nine to seven on volume of 1.39 billion shares. On the Nasdaq, decliners topped advancers eight to five on volume of 2.24 billion shares.

Washington: President Obama announced new rules Wednesday that cap compensation for executives at companies that take federal bailout money at $500,000.

After a narrow party-line approval in the House last week, the economic stimulus package is being debated in the Senate this week.

Bonds: Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 2.89% from 2.88% Tuesday. Treasury prices and yields move in opposite directions.

Lending rates were mixed. The 3-month Libor rate rose to 1.24% Wednesday from 1.23% Tuesday, according to Bloomberg.com. The overnight Libor rate fell to 0.25% from 0.31% Tuesday. Libor is a bank lending rate.

Other markets: In global trading, Asian markets ended higher and European markets rose in afternoon trading.

The dollar rose versus the euro and yen.

U.S. light crude oil for March delivery fell 46 cents to $40.32 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery rose $9.70 to settle at $902.20 an ounce.

Gasoline prices rose 1 cent to a national average of $1.90 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA.  

Investors seemed to take in stride brutal January auto sales.

The Dow Jones industrial average (INDU) added 141 points, or 1.8%, according to early tallies.

The Standard & Poor's 500 (SPX) index gained 13 points, or 1.6%. The Nasdaq composite (COMP) gained 22 points, or 1.5%.

Commodity, technology, retail, transportation and housing stocks all rallied Tuesday afternoon, while financial shares remained under pressure.

Stocks seesawed through most of the session before finding momentum in the afternoon.

Better-than-expected results from drugmakers Merck and Schering-Plough, as well as homebuilder D.R. Horton, helped counter the barrage of mixed to gloomy corporate data. A surprise rise in the pending home sales index helped, too. But any gains were limited by continued worries about the economy.

"Between the home sales number and Merck you had a bit of good news," said John Wilson, chief technical strategist at Morgan Keegan. "In this environment, any bit of good news helps."

He said that after the Dow touched a two-month low on Monday, stocks were perhaps due for a bit of a bounce.

Longer term, investors remain wary of the outlook for the economy and the gridlock in Congress that is delaying the passage of an economic stimulus package, Wilson said.

Stocks are struggling in the aftermath of the worst January on record for the Dow industrials and the S&P 500, with both major gauges having lost more than 8%.

Investors are being cautious so far in February as they gear up for the big monthly jobs report Friday and the second round of fourth-quarter corporate results due over the next few weeks.

Autos: Sales at Ford Motor, Toyota and GM all plunged more than expected in January, with the automaker industry reporting its worst monthly sales in 26 years.

Sales at Ford Motor (F, Fortune 500) fell 40% in January, missing forecasts for a drop of 30%. Toyota sales fell 32% in the month, versus forecasts for a drop of 25%.

General Motors (GM, Fortune 500) sales tumbled 49% in January, versus forecasts for a drop of 38%. Separately, GM said it was offering buyouts to all of its hourly workers in an attempt to cut costs and give nervous workers a way out. Chrysler made a similar announcement Monday.

Economy: Pending home sales rose 6.3% in December, according to a report from the National Association of Realtors released Tuesday morning. Sales rose as lower home prices and mortgage rates brought out buyers. Economists surveyed by Briefing.com thought sales would hold steady after sliding a revised 3.7% in the previous month.

Corporate results: Investors sorted through a mix of quarterly results Tuesday, including reports from Dow component Merck and package-delivery firm UPS.

Merck (MRK, Fortune 500) reported better-than-expected quarterly sales and earnings thanks to strong sales of its diabetes drugs. Fellow drugmaker Schering-Plough (SGP, Fortune 500) also reported higher quarterly earnings. Merck shares rose 6% and Schering-Plough rose 7%.

D.R. Horton (DHI, Fortune 500) reported a smaller quarterly loss versus a year ago that was narrower than what analysts had forecast. Shares rallied 23%, joining a parade of homebuilder stocks that were surging on the pending home sales index.

UPS (UPS, Fortune 500) reported better-than-expected quarterly earnings on worse-than-expected quarterly sales. The company, seen as a proxy for the economy, said package volumes are down because of the recession and that it would be cutting costs going forward. Shares gained 6%.

Motorola (MOT, Fortune 500) reported a quarterly loss versus a year-ago profit on weaker sales. However, both earnings and sales results topped analysts' expectations. The telecom also warned that it will post a bigger-than-expected first-quarter loss, that it is suspending its dividend and that it is in search of a new chief financial officer. Shares fell 11%.

Citigroup (C, Fortune 500) issued its first progress report on how it's spending the $45 billion it received in government funds. The bank said it has approved the use of $36.5 billion to issue mortgages, make credit card loans and buy troubled assets. Citi shares fell 4%.

Other big financial stocks slipped too, including Bank of America (BAC, Fortune 500), American Express (AXP, Fortune 500) and JP Morgan Chase (JPM, Fortune 500).

Corporations announced almost 8,000 job cuts Tuesday, includingPNC Financial (PNC, Fortune 500), which reported a big fourth-quarter loss and said it was cutting 5,800 jobs. Also, Liz Claiborne (LIZ, Fortune 500) said it was cutting 725 jobs. PNC shares fell 6% and Liz Claiborne shares rose 10%.

Market breadth was negative. On the New York Stock Exchange, winners beat losers eight to seven on volume of 850 million shares. On the Nasdaq, advancers beat decliners by a narrow margin on volume of 1.48 billion shares.

Senate debate: After a narrow party-line approval in the House of Representatives last week, the economic stimulus package has moved to the Senate this week. The plan that is before the Senate would increase the deficit by $885 billion over the next ten years, according to a report from the Congressional Budget Office.

Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.81% from 2.72% Monday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.

Lending rates inched higher. The 3-month Libor rate rose to 1.23% from 1.22% Monday, according to Bloomberg.com. The overnight Libor rate rose to 0.31% from 0.28% Monday. Libor is a bank lending rate.

Other markets: In global trading, Asian markets were mixed, while European markets ended higher.

The dollar fell versus the euro and yen.

U.S. light crude oil for March delivery rose 70 cents to settle at $40.78 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $14.70 to settle at $892.50 an ounce.

Gasoline prices rose 1 cent to a national average of $1.89 a gallon, according to a survey of credit-card swipes released Tuesday by motorist group AAA.