updated 9/9/2004 8:27:17 AM ET 2004-09-09T12:27:17

Investors adopted a wait-and-see attitude on the economy, despite Federal Reserve Chairman Alan Greenspan’s improved assessment, and bid stocks modestly lower Wednesday as Wall Street waits for better economic and earnings news.

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While Greenspan said the economy has “regained some traction” after the summer’s slowdown, investors looked past his congressional testimony, focusing instead on uncertainty about the health of the economy, third-quarter earnings pre-announcements and fiscal policy.

Greenspan gave no strong indications whether the Fed would raise interest rates at its meeting Sept. 21. While many analysts believe a quarter percentage point increase is likely, others wonder if election year politics will cause the Fed to skip a rate hike until November. The benchmark rate stands at 1.5 percent.

“Between the economy the way it is and the election coming up, I don’t think the Fed will raise rates this month,” said David Legeay, senior vice president at McDonald Financial Group. “It’s still a show-me recovery, and a lot of businesses are waiting to see how the economy fares and what the Fed will do before they make any big investments.”

The Dow Jones industrial average fell 29.43, or 0.3 percent, to 10,313.36.

Broader stock indicators were also lower. The Standard & Poor’s 500 index was down 5.03, or 0.4 percent, at 1,116.27, while the Nasdaq composite index dropped 7.92, or 0.4 percent, o 1,850.64.

With terror fears fading after the close of the political conventions and oil prices on the decline, investors are firmly focused on economic numbers, with an eye toward how the Fed will interpret the data when it looks at interest rates.

Since third-quarter earnings will likely be reduced due to the summer’s high oil prices, the market has mostly discounted the upcoming earnings season — even though double digit profit growth is still likely — with hopes of a resurgence in profits in the fourth quarter to go along with the elections and, hopefully, more strength in the economy.

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“Clearly, everyone wants to know what the catalyst is going to be to send this market higher,” said Brian Belski, market strategist at Piper Jaffray. “One, we now have a lack of negative news of the kind that impacted the market over the summer. But more importantly, we’ve been increasingly conservative on earnings growth estimates, and those numbers will have to start going up if we’re going to rally.”

Despite his cautiously optimistic assessment, Greenspan echoed Wall Street’s concerns over oil prices, which have fallen from record highs in recent weeks but stubbornly remain above $40 per barrel. A barrel of light crude for October delivery was quoted at $42.77, down 54 cents, on the New York Mercantile Exchange.

Dow component Coca-Cola Co. dropped $2.20 to $43.45 after its chief bottler, Coca-Cola Enterprises Inc., issued warnings over its third-quarter earnings and reduced its full-year outlook due to lower demand for the company’s soft drinks. Coca-Cola Enterprises fell $1.11 to $19.48.

Shares in Wal-Mart Stores Inc. were down 21 cents at $53.08 after the retailer’s chief executive told an investing conference that Christmas sales would likely meet expectations.

Fast food chain McDonald’s Corp. said its sales from stores open at least a year rose 3.9 percent in August, citing improved services and more menu options. McDonalds gained 12 cents to $27.50.

Dean Foods Corp. tumbled $6.73 to $30.40 after cutting its outlook for the quarter and the year, citing competition and rising costs for milk, fuel, resin and other commodities.

McKesson Corp. fell 15 percent, or $4.85, to $26.98, after the pharmaceutical distributor warned that its fiscal earnings for the quarter would fall short of expectations due to fewer drug prices increases than expected

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where preliminary consolidated volume came to 1.54 billion shares, compared to 1.48 billion on Tuesday.

The Russell 2000 index of smaller companies was down 5.17, or 0.9 percent, at 557.76.

Overseas, Japan’s Nikkei stock average closed down 0.2 percent. In Europe, France’s CAC-40 fell 0.1 percent for the session, Britain’s FTSE 100 closed down 0.2 and Germany’s DAX index dropped 0.1 percent.

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