U.S. stocks fell as AOL Time Warner and Nokia made sales forecasts that disappointed investors, automakers reported lower November sales and Merrill Lynch advised clients to reduce share holdings.

The declines pared a rally that has sent the major stock indexes up more than 20 percent since Oct. 9.

The Dow Jones industrial average slid 119.64, or 1.3 percent, to 8742.93, and the Standard & Poor's 500-stock index fell 13.78, or 1.5 percent, to 920.75. Both benchmarks dropped for a third consecutive session.

The Nasdaq composite index lost 35.82, or 2.4 percent, to 1448.96.

Merrill strategist Richard Bernstein recommended lowering stock holdings to 45 percent of assets from 50 percent and raising bond holdings to 35 percent from 30 percent. He also cited concern that conflict in the Middle East will lead to higher energy prices.

Bernstein ranked as the top quantitative strategist this year in a survey by Institutional Investor magazine. He is the only Wall Street strategist among 12 surveyed by Bloomberg who recommended that investors hold less than half their assets in stocks.

AOL Time Warner dropped $2.36, to $14.21. The 14 percent decline was its largest since July 25. The company said advertising revenue at its America Online unit will fall by as much as half this next year and profit will decline by at least 15 percent.

Yahoo, the Internet search service, slid 68 cents, to $17.36.

Nokia's American depositary receipts fell 93 cents, to $19.22. The world's biggest cell-phone maker said industry-wide sales will rise 10 percent or "slightly more" next year, compared with earlier estimates of 15 percent growth. The company also said wireless-equipment sales will drop 20 percent this year and 10 percent in 2003.

Motorola, the world's second-largest maker of mobile telephones, fell $1.19, to $10.51. American depositary receipts of Ericsson, the world's biggest maker of wireless networks, fell 38 cents, to $9.16. Cisco Systems, the leading maker of telecommunications equipment, slipped 54 cents, to $14.52.

Ford Motor tumbled $1.49, to $9.96. The 13 percent decline was its biggest in more than a year. The world's second-largest carmaker said its U.S. vehicle sales fell 20 percent in November as no-interest loans and discounts failed to attract as much business as they did a year earlier.

General Motors, the largest automaker, said sales declined 18 percent. Shares shed $2.05, to $37.90. DaimlerChrysler, which reported a 12 percent decline in sales at its Chrysler unit, lost $1.82, to $33.75.

Merck slid $1.13, to $58.82, paring an 8 percent decline. The second-biggest drugmaker reaffirmed its profit forecast to fend off concern it would lower earnings targets at a conference call this week. Merrill cut the company to "sell" from "buy," then raised it to "neutral."

Citrix Systems climbed $1.26, to $12.69. The software maker said it expects fourth-quarter profit of 12 cents to 17 cents a share, excluding certain costs.

Other Indicators

* The New York Stock Exchange composite index fell 6.15, to 488.44; the American Stock Exchange index fell 0.36, to 812.64; and the Russell 2000 index of smaller-company stocks fell 7.71, to 400.83.

* Declining issues outnumbered advancing ones by 8 to 5 on the NYSE, where trading volume fell to 1.49 billion shares, from 1.61 billion on Monday. On the Nasdaq, decliners outnumbered advancers by 2 to 1 and volume totaled 1.61 billion, down from 1.87 billion.

* The price of the Treasury's 10-year note rose 94 cents per $1,000 invested, and its yield fell to 4.21 percent, from 4.26 percent on Monday.

* The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 124.61 yen, up from 124.58 late Monday, and a euro bought 99.57 cents, down from 99.73.

* Light, sweet crude oil for January delivery settled at $27.34 a barrel, up 10 cents, on the New York Mercantile Exchange.

* Gold for current delivery rose to $320.20 a troy ounce, from $317.60 on Monday, on the New York Mercantile Exchange's Commodity Exchange.