updated 11/2/2006 7:39:14 AM ET 2006-11-02T12:39:14

Wall Street retreated Wednesday after most of the day’s economic data showed weakness, including a report that manufacturing growth in October was the slowest in more than three years.

Major Market Indices

The Institute for Supply Management, a private research group, reported softness across the U.S. manufacturing sector . New orders, production and prices fell, while hiring was up. Treasurys rallied on the numbers and the U.S. dollar fell.

Data on the housing market also bolstered fears of an economic slowdown. Pending home sales for September fell 1.1 percent, down 13.6 percent from a year earlier. September residential construction spending also fell 1.1 percent, the sixth month that construction spending dropped, the longest stretch of weakness in residential construction in more than a decade.

Before the manufacturing report’s release, stocks were up on strong earnings from MasterCard Inc. and an upbeat forecast for private-sector jobs created in October.

That the indexes didn’t fall harder is an indication “this market is in denial,” said Rob Brown, chief investment officer of Genworth Financial Asset Management, an Encino, Calif.-based money manager with $4.7 billion under management. “It wants to focus on the positives and ignore the negatives.”

The Dow Jones industrial average finished the day down 49.71 points, or 0.41 percent, while the broader Standard & Poor’s 500-stock index slid 10.13 points, or 0.74 percent. The technology-rich Nasdaq composite index tumbled 32.36 points, or 1.37 percent.

The difference between equity investors’ sunny focus and bond investors’ gloomy outlook widened. Bonds rose as debt investors bid up the possibility of a sharp economic downturn.

The yield on the 10-year Treasury fell to 4.56 percent from 4.61 percent late Tuesday. Bonds also rose sharply during Tuesday’s session, with the yield on 10-year Treasuries falling from 4.67 to 4.61. The U.S. dollar was mostly higher against other currencies.

There is still a fair amount of contrasting economic data, said Doug Johnston, head of U.S. trading at Canaccord Adams in Boston.

“There are a lot of warning signs, but if it were glaringly obvious, everyone would be on it,” he said.

Falling bond yields, for instance, are helping keep interest rates low, a boon to homeowners with adjustable rate mortgages.

And commodities prices remain weak. Crude oil futures dropped Wednesday; a barrel of light crude settled at $58.71, down 2 cents in trading on the New York Mercantile Exchange. Oil’s July high was more than $78 a barrel.

In company news, drugstore operator CVS Corp. announced Wednesday it is buying pharmacy benefits manager Caremark Rx Inc. for about $21.3 billion in stock. Caremark fell $1.06 to $48.17 and CVS dropped $2.32 to $29.03.

Earnings news continued strong.

MasterCard Inc., owner of the nation’s second-largest credit card brand after Visa, rose $10.97, or 14.80 percent, to $85.07 after its third-quarter profit climbed 82 percent . The company’s earnings of $193 million, or $1.42 per share, beat analysts’ estimates.

Marsh & McLennan Companies Inc., the nation’s largest insurance brokerage, rose 96 cents to $30.40 after its profit more than doubled in the third quarter from a year earlier, helped by cost-cutting measures.

Papa John’s International Inc. fell for a second day, dropping $4.37, or 11.91 percent, to $32.33 after the pizza chain operator reported a 1.1 percent decline in October same-store sales, its first decline in 22 months.

Overseas, Japan’s Nikkei stock average fell 0.15 percent. Britain’s FTSE 100 rose 0.33 percent, Germany’s DAX index was up 0.37 percent and France’s CAC-40 gained 0.41 percent.

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