updated 6/1/2005 7:14:06 AM ET 2005-06-01T11:14:06

A surprisingly poor reading of economic activity in the Midwest sent stocks sliding Tuesday, as investors focused on concerns about manufacturing and looked past a jump in consumer confidence.

Major Market Indices

Investors were disappointed when the Purchasing Management Association of Chicago reported that its index of business activity in that area fell to 54.1 in May on from 65.6 in April. In April, the index had fallen from 69.2 in March.

Any reading in the indicator above 50 indicates expansion in the manufacturing sector, while and a number below 50 indicates contraction.

The Chicago indicator is a closely watched barometer of manufacturing activity and is considered a precursor of the national assessment to be issued by the Institute of Supply Management on Wednesday.

The news canceled out the positive effect on trading from the Conference Board’s consumer confidence index . That index rose to 102.2, up from a revised 97.5 in April, above the 96 analysts expected.

In midday trading, the Dow Jones industrial average fell 48.32, or 0.46 percent, to 10,494.23.

Broader stock indicators also fell. The Standard & Poor’s 500 index was down 5.51, or 0.46 percent, at 1,193.27 and the Nasdaq composite index was off 8.82, or 0.42 percent, at 2,066.91.

Although Wall Street has rallied in recent weeks, it has also reacted nervously to economic indicators, unable to shake concerns that the recovery is faltering just as the Federal Reserve holds to its policy of raising interest rates. This week’s indicators, which also include the government’s employment report for May, due out Friday, are reviving some of the market’s uneasiness.

“We’ve seen a good run in the market, and now it’s pausing a little bit,” said Scott Jacobson, chief investment strategist at Jefferies & Co. “The debate now is how far the Fed will go. Will the Fed drive the economy into a slow patch?”

In corporate news, American International Group Inc., the insurance company being investigated over accounting issues, fell 72 cents to $55.68.

AIG filed its long-delayed annual report with the Securities and Exchange Commission Tuesday, cutting its shareholders’ equity at Dec. 31, 2004, by $2.26 billion, or 2.7 percent, to $80.61 billion, in line with an earlier estimate.

Mechel Steel Group OAO, a major Russian mining and metals producer, rose $1.45 to $27.85 after announcing that its board recommended a dividend for 2004 that is worth about $1.47 per U.S.-listed share.

Google Inc. rose $5.58 or 2.1 percent to $271.58 after an analyst from Piper Jaffray raised the firm’s price target on the stock.

Dow component Alcoa Inc. fell 40 cents to $27.07 after reporting after the bell Friday that it had received a grand jury subpoena related to an investigation of the aluminum fluoride sector.

Declining issues barely outnumbered rising ones on the New York Stock Exchange, where volume came to 502 million shares, just above Friday’s pace of 469 million. Markets were close Monday for Memorial Day.

The Russell 2000 index fell 0.52 or 0.08 percent to 616.38.

Overseas, Japan’s Nikkei stock average rose 0.1 percent. In afternoon trading, Britain’s FTSE 100 was down 0.5 percent, Germany’s DAX index was down 0.4 percent, and France’s CAC-40 was down 0.3 percent.

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